Who is an Employee, Who is an Independent Contractor, and Why Does It Matter?

March 17, 2017

Luis Hansen, Esq.

Ty Hyderally, Esq.

A common issue in employment law litigation is the determination of whether a person should be categorized as an employee or an independent contractor. Though our clients are often told by their employers that they are categorized as “independent contractors,” this label is frequently applied incorrectly. The difference between being considered an employee or an independent contractor is an important one because it may determine whether a person is covered by the state laws that ensure fair wage payment and protect workers from discrimination and retaliation. In New Jersey, these protective laws only apply to workers that are categorized as “employees.”

The New Jersey Law Against Discrimination (“LAD”) and the Conscientious Employee Protection Act (“CEPA”) have ambiguous definitions of the term “employee.” CEPA defines the term as just as “any individual who performs services for and under the control and direction of an employer for wages or other remuneration.” The LAD’s definition is even less helpful. It simply states that the term employee does not include domestic workers. Because of this, New Jersey courts have developed a twelve point test to determine whether a person is an employee under the law. Pursuant to this test, courts weigh the following factors:

(1) the employer’s right to control the means and manner of the worker’s performance (the more control an employer has, the more likely the worker is an employee).

(2) the kind of occupation–supervised or unsupervised (supervision of a worker suggests that he or she is an employee)

(3) skill;

(4) who furnishes the equipment and workplace (an worker that has his or her own equipment is more likely to be an independent contractor).

(5) the length of time in which the individual has worked; (longer tenures suggest an employer-employee relationship).

(6) the method of payment (a person is more likely to be an independent contractor if payment depends on units produced or sold).

(7) the manner of termination of the work relationship (if a person is fired rather than have a contract terminated, then it is more likely that he or she is an employee).

(8) whether there is annual leave (having work benefits suggests an employer-employee relationship).

(9) whether the work is an integral part of the business of the “employer” (a person hired to write software code for a tech company is more likely to be an employee than a person hired to do landscaping work that same company).

(10) whether the worker accrues retirement benefits (again, having work benefits suggests that the worker is an employee).

(11) whether the “employer” pays social security taxes (getting social security taxes deducted from your check suggests that you are an employee).

(12) the intention of the parties.
Though New Jersey courts carefully balance all of these factors, the factors do not have to be given equal importance. Some factors may be weighed more or less than others. However, because both of these laws are intended to be interpreted liberally to provide broad protection, courts will often consider a person to be an employee if more factors than not weigh in favor of being defined as an employee.

New Jersey courts make this determination differently when analyzing New Jersey’s Unemployment Compensation Law (“UCL”), Wage Payment Law (“WPL”) and the Wage and Hour Law (“WHL”). For these types of cases, courts apply the “ABC” test, which assumes that a worker is an employee until the employer proves otherwise. To defeat this presumption, an employer must show that:

• The worker “has been and will continue to be free from control or direction over the performance” of the work he or she is responsible for;
• Such work “is either outside the usual course of business for which [it] is performed, or that [it] is performed outside of all the places of business of the enterprise for which [it] is performed”; and
• The worker “is customarily engaged in an independently established trade, occupation, profession or business.”

Though these factors overlap with the test used in LAD and CEPA cases, the ABC test puts the burden of proof on the employer.

The above blog post was written over one year ago. The information in this blog post may not be current due to changes in the law or recent case decisions. We encourage you to contact our firm, at 973-509-8500, for information on this particular post and to make sure the content is still current.

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