Misclassifying Employees as Independent Contractors

Until recently, the law in New Jersey regarding the classification of individuals as employees as opposed to independent contractors was unsettled. Because of this uncertainty, many companies made it their practice to misclassify home improvement specialists such as window and garage door installers, roofers and others, as independent contractors rather than as employees, even though these companies controlled their workers’ job schedules, pricing, uniforms, and methods of installation. By misclassifying a worker as an independent contractor rather than as an employee, companies are able to reap a financial windfall by avoiding having to pay workers overtime wages, health benefits, 401(k) contributions, sick pay, tuition reimbursement, and avoid contributing their share of required federal withholding and social security taxes, all while denying misclassified workers the benefit of such pay and contributions.

This all changed on January 14, 2015, when New Jersey’s Supreme Court, decided the case of Hargrove v. Sleepy’s, 220 N.J. 289 (2015). In Hargrove v. Sleepy’s, our New Jersey Supreme Court in a unanimous 6-0 decision ruled that when deciding whether an individual is properly classified as an employee or independent contractor New Jersey courts are to apply what is known as the “ABC Test”. The ABC Test dictates that an individual is presumed an employee unless an employer can prove that: (1) the employer neither exercised control over the worker, nor had the ability to exercise control in terms of completion of the work; (2) the services provided were either outside the usual course of business or performed outside of all the places of business of the enterprise; and (3) the individual has a profession that will plainly persist despite termination of the challenged relationship. Failure of an employer to satisfy any one of these criteria results in a worker being classified as an employee.

Sleepy’s is a well-known national retailer of beds, mattresses and related products. The company had a practice of hiring small trucking companies or “truckers” like Sam Hargrove to make deliveries of their products. Sleepy’s called these truckers “independent contractors.” However, Sleepy’s forbade the truckers from having goods from other companies on their trucks while making deliveries for Sleepy’s. Sleepy’s also provided truckers with scanners which Sleepy’s required they use during the course of the day. These scanners were GPS like devices which allowed Sleepy’s to know where the truckers were located at any point in time during the day. The truckers were required to enter each delivery made into the scanners after completing each deliver. Sleepy’s reserved the right to change drivers’ schedules as Sleepy’s deemed appropriate so as to accommodate a request made by a customer of Sleepy’s. Sleepy’s also had the right to exact a monetary penalty on trucker who did not make the Sleepy’s deliveries in the order that Sleepy’s wanted them made. Sleepy’s also had the power to terminate a trucker at its discretion.

Although the outcome of the Hargrove v. Sleepy’s remains pending before the United States District Court of New Jersey where it originated, applying the ABC Test to the facts underlying the relationship between Sleepy’s and the truckers and deliverers who seek class certification before the district court, it is fair to say that the court will likely conclude that Sleepy’s misclassified the truckers and deliverers who worked for it as independent contractors as opposed to the employees they were in reality. Should this prediction be realized, Sleepy’s will be required to pay the class of truckers/deliverers for any and all unpaid overtime wages, health benefits, 401(k) contributions, sick pay, and reimburse for the share of required federal withholding and social security taxes Sleepy’s avoided paying.

If you believe your employer has misclassified you as an independent contractor instead of as an employee, call Mashel Law (732) 536-6161 or fill out the contact form on this page for immediate help. The attorneys at Mashel Law located in Marlboro, New Jersey are dedicated exclusively to protecting the rights of employees.