New Jersey High Court Rules That Drywall Workers Are “Employees” Under ABC Test

On August 2, 2022, the New Jersey Supreme Court unanimously reversed a finding that workers for a drywall installation company were independent contractors, instead ruling that the workers had been misclassified and were, in fact, employees.  As previously outlined here, in 2018, the Supreme Court of California established the so-called “ABC Test,” which creates a rebuttable presumption that workers are employees, and makes it extremely difficult for employers to prove otherwise.  This decision marked the beginning of a long, ongoing battle between workers and business interests that has been waged at the legislative and electoral levels—and, most recently, in the courts.

While the issue of whether the ABC Test applies to all workers in California remains unsettled, it is definitively the law of the land in New Jersey.  Moreover, the New Jersey Supreme Court’s decision in East Bay Drywall, LLC v. Department of Labor & Workforce Development is one of the first major rulings to apply the test.

The decision focuses on prong “C,” which looks to whether workers are customarily engaged in an independently established trade, occupation, business, or profession.  While the lower court found that East Bay Drywall had satisfied prong “C” because its workers were paid through their own corporate entities, the court saw right through this: 

          A business practice that requires workers to assume the appearance of an independent business entity—a company in name only—could give rise to an inference that such a practice was intended to obscure the employer’s responsibility to remit its fund contributions as mandated by the state’s employee protections statutes.

Indeed, even before the ABC Test, employers have increasingly required employees to establish their own LLCs to create the appearance of independent contractor status.  However, the New Jersey Supreme Court recognized this practice for the ruse that it is.  As employers continue to doggedly seek out loopholes to misclassify their employees as independent contractors—and courts and workers’ rights advocates work tirelessly to close them—other courts will hopefully take note of the New Jersey Supreme Court’s discerning analysis.