By: Francine Foner, Esq. and Ty Hyderally, Esq.
As discussed in a prior blog, in 2015 the New Jersey Supreme Court held that the test for whether someone is an “employee” entitled to the protections of the New Jersey Wage Payment Law (WPL), as opposed to an independent contractor, is the same “ABC” test courts use to determine whether an individual is an employee for purposes of receiving unemployment compensation benefits under the New Jersey Unemployment Compensation Law. N.J.S.A. § 43:21-19(i)(6) (UCL). Hargrove v. Sleepy’s, LLC, 220 N.J. 289, 303-304 (2015). (https://www.employmentlit.com/wage-laws/the-new-jersey-wage-payment-law/).
In Hargrove, the New Jersey Supreme Court held that truck drivers who had challenged their independent contractor status should have been classified as employees covered by the WPL, under the “ABC” test. Under the ABC test, an individual who performs services for an employer is presumed to be a covered employee under the WPL, unless the employer can meet all of the following three tests: (A) the individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; (B) such service is either outside the usual course of business of the enterprise for which such service is performed, or such service is performed outside of all the places of business of the enterprise for which such service is performed; and (C) the individual is customarily engaged in an independently established trade, occupation, profession or business. Id.; N.J.S.A. § 43:21-19(i)(6). The failure to satisfy any one of the three criteria results in the individual being deemed an “employee” entitled to the protections of the WPL.
On July 2, 2021, the Appellate Division held that, based upon the ABC test, a class of real estate salespersons were employees covered by the WPL, at least prior to August 9, 2018, when New Jersey amended the Real Estate Brokers and Salesmen Act (Brokers Act) to allow real estate salespersons to contractually agree to be independent contractors exempt from the WPL. Kennedy v. Weichert Co., 2021 N.J. Super. Unpub. LEXIS 1354.
James Kennedy, II, was a commissioned salesperson with Weichert Company, a licensed real estate broker. Kennedy alleged, for himself and a putative class (Class), that Weichert violated the WPL’s limitation on wage withholdings or diversions, N.J.S.A. 34:11-4.4, by deducting marketing, insurance and other expenses from his wages. Kennedy alleged that under the ABC test, he and the Class were in fact “employees” protected from such withholdings from their wages by the WPL. Weichert moved to dismiss the lawsuit upon the ground that Hargrove’s ABC test was limited to truckdrivers, since Hargrove involved a truck driver. Weichert further argued that since fully commissioned real estate salespersons are expressly excluded from receiving unemployment benefits under the UCL, which uses the same ABC test to determine if someone is an employee under the UCL, it would be inconsistent to find that real estate sales persons are employees under the WPL. The Appellate Division rejected both of these arguments.
First, the Appellate Division observed that “[a]lthough Hargrove involved a truck driver’s WPL claim, the New Jersey Supreme Court did not qualify its holding “that the ‘ABC’ test . . . governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage-payment or wage-and-hour claim.” Kennedy at *2, citing Hargrove at 295. Thus, the Appellate Division refused to limit the Hargrove holding to truck drivers, or otherwise qualify the Hargrove’s broad holding.
Second, the Appellate Division disagreed that workers could not be employees covered by the WPL if they were excluded from coverage under the UCL. As the Kennedy Court opined:
a person may be an employee under one statute and not another. Had the Legislature intended to exempt real estate salespersons from the WPL’s reach, it could have said so. The Legislature obviously found good cause to exempt commissioned real estate salespersons from the UCL. Perhaps, the Legislature believed real estate salespersons should not qualify for unemployment compensation because of their control over when and where they work. At the same time, the Legislature evidently found no sound reason to deny real estate salespersons their right under the WPL to timely payment of compensation they already have earned, without unauthorized withholdings or diversions.
Kennedy at *16-17.
Lastly, Weichert argued that an independent contractor agreement by a real estate sales person is authorized by recent amendments to the Brokers Act, effective August 9, 2018. The Court agreed that the amendments to the Brokers Act may affect whether a real estate salesperson is an employee under the WPL, if the parties enter into an agreement defining the salesperson as an independent contractor. However, the Court found that such amendments were prospective only and thus would have minimal impact on the case before it, as the amendments would only apply to approximately the last three months of Kennedy’s relationship with Weichert. Therefore, the Court declined to consider the impact of the amendments for that brief period. Further, the Court found that to determine if the amendments precluded application of the ABC test after August 9, 2018, the parties would need to develop a full factual record, as neither party had presented their contract during Kennedy’s employment. Id. at 27. The Appellate Division therefore directed the trial court to determine the appropriate test in light of a full factual record.
This opinion, albeit unpublished, confirms that the New Jersey Supreme Court’s decision in Hargrove requiring use of the ABC test to determine whether an employee is covered under the WPL has broad application to a variety of employees, not just truck drivers. Thus, the decision paves the way for more workers who have been misclassified as independent contractors under the ABC test to seek proper classification.
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