Employee or Independent Contractor

While many times we think of “employee” as anyone who does work for someone else, “employee” is actually a legal term that comes with many protections and benefits, including unemployment and workers’ compensation insurance coverage. Other workers can be classified as an “independent contractor” or “1099 employee” (named for the tax form issued to independent contractors).

Who is an Employee?

In New Jersey, per the Department of Labor and Workforce Development, any person who gets paid for performing services is an employee unless they meet a three-pronged “ABC” test:

 (A)     The employer doesn’t control or direct how the worker performs the service. This requirement must be both according to the terms of their service or contract AND in the actual-fact performance of the job. So, for instance, if a New Jersey company hires a courier to pick up a package from New York City and transport it to California, but makes no other restrictions on how, when, or in what manner the courier does so, this is a clear independent contractor relationship. At the other end of the spectrum, if the company requires that the worker come to its facility, put on its uniform, drive the package in its truck, make scheduled daily stops to check-in, take a particular route, arrive at a specific time, and adhere to a company code of conduct while en route, this is more likely an employment relationship (albeit a temporary one).

Most service relationships aren’t this hands-off or clear-cut, however, and the confusion comes with how much direction is enough to establish an “employment” rather than a “contract” relationship. For example, if the business allows the courier to drive their own truck, but requires they take a certain route and make regular check-ins, would that be enough to disqualify the worker from being an independent contractor? What if the business also required they adhere to a set daily schedule? Or use one of its trucks? These are questions that must be addressed on a case-by-case basis to determine whether a worker qualifies for the exemption and can be properly classified as an independent contractor.

(B)      The service is either outside the usual course of the business or performed outside of all the places of business of the company. In New Jersey, a company that is engaged in the business of doing something can’t hire extra workers as “independent contractors” to do the jobs it usually has people doing anyway at the locations they usually do them. For example, in the case of our earlier package, if the business that hired the courier is a shipping company that routinely ships customers’ packages cross-country, an extra courier hired to do that job would likely be considered a temporary employee. On the other hand, if the business is a pet store, which primarily conducts business in Basking Ridge but needs to ship a special-order kennel to Los Angeles, it may likely that the courier is appropriately classified as an independent contractor.

A grey area arises under the “usual” parts of this requirement. If a business is a Newark shipping company with primarily East Coast operations, but contracts with that courier for a cross-country shipment, are they appropriately classified as an independent contractor? What if the shipping business contracts with them about three times a month, at irregular intervals – is this enough to count as a “usual” place where the company does business? Again, these are questions that must be determined on a case-by-case basis.

(C)      Such individual is customarily engaged in an independently established trade, occupation, profession or business. While the first two requirements relate more to the business, this requirement revolves around how the worker performs the service. If our courier regularly works transporting packages or goods – perhaps has business cards that say “Mo’s Courier Service,” claims a home-office deduction on their income taxes, engages in marketing, participates in a small business trade organization, and has multiple clients – it will be more likely that they can be properly classified as an independent contractor rather than an employee. On the other hand, if the worker’s entire income is provided by regular courier services for one business, it is more likely that they may be appropriately considered an employee of the business.

If you believe your work status is or has been misclassified as an independent contractor rather than an employee, the experienced employment attorneys at the Mark Law Firm can help. Our team of experienced lawyers will review your unique situation and help determine whether you may have a legal basis for a workers’ compensation, employment, or wage and hour claim and help you take legal action to enforce your rights.