Employment Update

February 2015

Governor Cuomo Proposes Increase to Minimum Wage and New Jersey's Highest Court Announces Applicable Test for Determining Independent Contractor Relationship

Governor Cuomo Proposes an Increase to Minimum Wage
Earlier this month, Governor Cuomo unveiled his proposal to raise the minimum wage in New York State to $10.50 per hour and in New York City to $11.50 by 2016. His new proposal recognizes the higher cost of living in New York City and proposes a slightly higher statewide minimum wage than he endorsed last year. If approved, New York would have the highest minimum wage in the United States. Currently the minimum wage in New York is $8.75 per hour and is scheduled to increase to $9.00 per hour in 2016.

The Governor's latest proposal is consistent with the growing trend of states and municipalities who have been taking a proactive step to increase minimum wages prior to the federal government doing so.

We expect that legislation will be introduced in the coming months to effectuate the Governor's proposal and we will keep you apprised of any developments.

New Jersey Supreme Court Confirms Applicable Test for Determining Independent Contractor Status
On January 14, 2015 the New Jersey Supreme Court ruled that the so-called "ABC test" should be used in determining whether an individual is considered an independent contractor or an employee for the purpose of the New Jersey Wage & Hour law ("WHL") and Wage Payment Law ("WPL"). This test makes it significantly easier for individuals to prove their status as employees for purposes of the WHL and WPL.

The Decision
In Hargrove v. Sleepy's LLC,1the plaintiffs, a group of delivery truck drivers, asserted that Sleepy's had misclassified them as independent contractors in violation of the WHL and WPL. The district court judge issued a decision that applied the federal common law test, which focuses primarily on the employer's ability to control the contractor's work performance, and granted summary judgment to Sleepy's. The plaintiff appealed to the Third Circuit Court of Appeals.

The Third Circuit asked the New Jersey Supreme Court to consider the issue of which test should be applied to determine independent contractor status, noting that the New Jersey courts had applied at least four different tests when analyzing this issue in other contexts.

In a unanimous decision, the New Jersey Supreme Court held that the ABC test applies when determining whether an individual is considered an independent contractor or an employee under the WHL and the WPL. Under the ABC test, the individual is presumed to be an employee unless the individual can establish that:

  • The individual is "free from control or direction over the performance of [his] service";
  • The service is "outside the usual course of business" or outside the company's place of business; and
  • The "individual is customarily engaged in an independently established trade, occupation, profession, or business."

The Court explicitly noted that the "failure to satisfy any one of the three criteria results in an 'employment' classification."

While the ABC test imposes a high standard, as noted by the Court, it is the test that has been used to determine employee classification questions under the New Jersey Unemployment Compensation Act. Moreover, the regulations enacted by the New Jersey Department of Labor reference the criteria set forth in the ABC test as a means to determine whether an individual is an employee or independent contractor.

What This Means for You
New Jersey employers who engage independent contractors should review their independent contractor relationships and assess whether they satisfy the stringent ABC test. In doing so, New Jersey employers should be cognizant that New Jersey's ABC test is more restrictive than the classification test used under federal law.

Special thanks to Daniella M. Muller, an associate in the Employment Practice Group, for her assistance preparing this alert.

1 Hargrove v. Sleepy's, LLC, No. A-70-12 (072742)(N.J. Jan. 14, 2015)

For more information on this issue or other employment matters, please contact:

Mara B. Levin at [email protected] or +1 212 592 1458 or
Carol M. Goodman at [email protected] or +1 212 592 1465.

Copyright © 2015 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for information purposes only.
Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.