Independent Contractor Misclassification and Compliance News August 2022

By MBO Partners | August 31, 2022

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misclassification and compliance news

It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics.

The New Jersey Supreme Court said that simply forming an entity such as an LLC and providing a certificate of insurance is not sufficient to demonstrate that a worker is an independent contractor.

A Massachusetts Appeals Court said that being free from direction and control is sufficient to prove independent contractor status.

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

1. New Jersey Supreme Court Says forming an entity and having insurance is not sufficient to demonstrate that a worker is “customarily engaged in an independently established trade, occupation, profession or business.”

Many states use some version of the ABC test to determine if a worker is an employee or independent contractor. In New Jersey, the statute relating to unemployment insurance states: 

Services performed by an individual for remuneration shall be deemed to be employment . . . unless and until it is shown to the satisfaction of the division that: 

(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. 

In a recent case, the New Jersey Supreme Court took the opportunity to address when an individual is customarily engaged in an independently established trade, occupation, profession or business. The New Jersey Department of Labor and Workforce Development had found that drywall installers were employees of a drywall installation firm and that the firm owed unemployment taxes.  

Prior New Jersey cases said that in considering whether a worker was engaged in an independent trade or business, a court would look at whether the worker maintained a business independent and apart from the company and whether the worker would be unemployed without the working relationship. Facts that might show independence would include having an independent business location, advertising, or having other employees.  

In this case, the New Jersey Supreme Court said that simply forming an entity such as an LLC and providing a certificate of insurance is not sufficient to demonstrate that the worker was engaged in independent trade or business. Companies that engage with independent workers in New Jersey would be well advised to document whether the independent workers had a separate business location, other clients, advertising, and/or had other employees

2. Massachusetts Appellate Court Says Being Free to operate a business is sufficient to demonstrate that a worker is “is customarily engaged in an independently established trade, occupation, profession, or business.”

A Massachusetts Appeals Court came to a different interpretation of what the requirement that a worker is, “customarily engaged in an independently established trade, occupation, profession, or business” means. The Massachusetts Appeals Court was presented with a case that also involved unemployment insurance. While Massachusetts has a more restrictive ABC test for wage and hour claims, for unemployment purposes, the statute says:  

Service… shall be deemed to be employment subject to this chapter irrespective of whether the common-law relationship of master and servant exists, unless and until it is shown to the satisfaction of the commissioner that— 

(a) such individual has been and will continue to be free from control and direction in connection with the performance of such services, both under his contract for the performance of service and in fact; and 

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

(c) such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. 

The case involved home inspectors. The Appeals Court said that the home inspectors performed their services free from the inspection company’s direction and control, that the question of whether the services were performed outside all the places of business was not contested on appeal, before turning to whether the workers were customarily engaged in an independently established trade or business. The court said:  

Prong C: “turns on whether the service in question could be viewed as an independent trade or business because the worker is capable of performing the service to anyone wishing to avail themselves of the services or, conversely, whether the nature of the business compels the worker to depend on a single employer for the continuation of the services.” 

“[t]he pertinent inquiry . . . is not whether the inspectors in fact operated their own businesses, but whether they were free to do so.” 

The court said that the nature of home inspections did not compel an inspector to depend on a single firm. Home inspectors were free to advertise their own services and maintain their own customers.  

In contrast with the New Jersey Supreme Court’s requirement that there was evidence that workers were engaged in their own businesses, the Massachusetts Appeals Court said that they just had to be free to engage in their own business.  

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help. 

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