Independent Contractor or Employee? NJ's ABC Test
Updated: Aug 18
Q: A company hires merchandisers to create displays of its products at various retail stores. Merchandisers are hired solely as independent contractors under written contracts and on a 1099 basis. Merchandisers are free to accept or decline work, and they can accept a job and subcontract it out. They are also free to perform similar work for other companies but currently, none of the merchandisers work for any other companies. Are the merchandisers valid “independent contractors” or are they “employees” under the NJ Dept. of Labor “ABC” test?
A: In Spar Marketing Service, Inc. v. NJ Dept. of Labor, the Appellate Division agreed with the NJDOL that merchandisers hired by a retailer under a similar fact pattern were employees and upheld the NJDOL’s assessment against Spar Marketing for unpaid contributions to unemployment and disability insurance payments to the State. The Appellate Division explained that while the merchandisers were free from control or direction over the performance of services (satisfying part “A” of the test) and the services were outside the usual course of business for the employer (satisfying part “B” of the test), the employer did not meet part “C” by showing that the merchandisers were customarily engaged in an independently established trade or business. There was no evidence that the merchandisers had worked as independent contractors for any other company or that they had any business relationships with other companies, during the audit period. Nor did the employer offer proof that the merchandisers' livelihood did not depend upon the continued connection with the employer, or that the employer was not their sole source of income during the audit period. The fact that the merchandisers were allowed to work for other companies was of little import since the employer could not show that the business of the merchandisers “exist and can continue to exist independently of and apart from the particular” relationship with the employer. With NJDOL audits on the rise, companies should review and possibly rethink their independent contractor agreements and relationships.
About the Author
Audra Schwartz is a partner at Fellig Schwartz, LLC, where she advises businesses and management on employment law compliance, workplace policies, restrictive covenant disputes, compensation issues, and business litigation matters throughout New York and New Jersey. She counsels employers on hiring practices, wage and hour issues, employee separations, discrimination and retaliation claims, and employment agreements.
This article is for informational purposes only and does not constitute legal advice. Employers with questions about New Jersey employment laws or matters should consult employment counsel.
