Guidance for Classification of Construction Workers Provided by New Jersey Supreme Court – JD Supra

Dry Wall Contractor

In a case involving a drywall installation business, the New Jersey Supreme Court has provided helpful tips for employers to properly classify construction workers as independent contractors or employees and to accurately assess when to owe worker contributions to the unemployment compensation and temporary disability benefit funds.

Background

East Bay, a drywall installation business in New Jersey that obtained workers’ services to perform drywall installation, compensated certain installers and issued them IRS Forms 1099 for tax reporting as independent contractors. The employer’s rationale for this classification was that all of the drywall work was performed by its installers at locations determined by the builder which were not owned or controlled by the company, East Bay did not control or direct the installers’ performance, the installers were not instructed on how many persons they should use to complete the job in the timeframe provided by the builder, and the installers were not supplied with any tools beyond raw materials, such as sheetrock and tape, and brought to the job sites their own ladders, scaffolding, stilts, chalk lines, electric tools, planks, and other tools required to complete the work.

After an audit conducted by the Department of Labor and Workforce Development, the auditor concluded that East Bay erred in classifying certain installers as independent contractors and owed the Department for unpaid contributions to the state unemployment and temporary disability compensation fund for these misclassified employees. East Bay challenged the auditor’s findings of misclassification with respect to the business entities, and the case was tried in the Office of Administrative Law. In addition to other findings, the Office of Administrative Law determined that the installers who had formed and operated corporations or limited liability companies during the audit period could not be deemed employees of East Bay, and thus, were independent contractors. The Department’s commissioner disagreed with this determination and found that all the installers at issue were misclassified as independent contractors.

On appeal, the Appellate Division applied the factors of the ABC test to the disputed installers and affirmed in part and reversed in part the commissioner’s classification decision. However, the New Jersey Supreme Court concluded that all the installers in question had not been properly classified as independent contractors due to insufficient information to prove the workers’ independence under prong C of the ABC test. East Bay Drywall, LLC v. Department of Labor and Workforce Development, No. A-7-21 (Aug. 2, 2022).

ABC Test

New Jersey follows the stringent ABC test (Unemployment Compensation Law, N.J.S.A. § 43:21-19(i)(6)(A)-(C)) to determine the proper classification of workers as employees or independent contractors.

Under the ABC test, a worker is considered an employee unless an employer can satisfy all three of these criteria:

  1. Such 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 …….

    Source: https://www.jdsupra.com/legalnews/guidance-for-classification-of-8879605/

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