New Jersey High Court Says Separate Corporate Structure Not Enough to Establish Independent Contractor Status – Littler Mendelson PC

Dry Wall Contractor

On August 2, 2022, the Supreme Court of New Jersey handed down a key ruling that significantly impacts how companies across the state should classify workers as independent contractors. In East Bay Drywall, LLC. v. Department of Labor and Workforce Development, the court held that an independent contractor’s establishment as a separate corporate structure in the form of a single-member limited liability company (LLC) or corporation accompanied by a certificate of insurance and publicly available business registration information was not alone sufficient to establish independent contractor status under the New Jersey Unemployment Compensation Act.1

The alleged employer in the case, East Bay Drywall, LLC (“East Bay” or the “Company”), is a drywall installation business in New Jersey. East Bay bids on projects and, once the projects are accepted, it contacts workers to determine their availability to work on the project. The contacted workers may be individuals, LLCs, or corporations that East Bay classified as independent contractors.

In East Bay Drywall the court was tasked with determining whether certain workers employed by East Bay were properly classified as employees or independent contractors under New Jersey’s Unemployment Compensation Law. In answering this question, the court applied the three-factor “ABC” test, under which the Company was required to satisfy all three of the A, B and C factors for a worker to be deemed an independent contractor. Under New Jersey’s Unemployment Compensation Law, services performed by an individual for remuneration are presumably considered “employment” unless the following factors are satisfied in full:

(A) 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 in fact; and

(B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.2

The New Jersey Supreme Court addressed the “C” prong and held that the creation of an LLC or corporation is not, standing alone, sufficient to show an independently established business. 

In its analysis, the Court noted that the key question is “whether a worker can maintain a business independent of and apart from the employer.”3 Under New Jersey law, to satisfy the “C” prong, one must present sufficient evidence that “a person has a business, trade, occupation, or profession that will clearly continue despite termination of the challenged relationship.”4 In other words, a person’s business must be capable of surviving even if the working relationship is terminated.

To demonstrate that the workers had “independently established” businesses that satisfied the “C” prong, the Company presented certificates of insurance and business entity registration information to demonstrate that …….


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