Employers could see higher labor costs, fewer contracting choices, and more lawsuits.
Hargrove v. Sleepy’s Ruling Is a Hit for Business
A recent federal ruling on a New
Jersey case concerning whether workers are employees or independent contractors
is bad news for small business owners, who will have a harder time working with
independent contractors and will face more legal liability for employment
classifications.
The case is Hargrove v. Sleepy’s, and it was filed by
three drivers who delivered mattresses for Sleepy’s. The drivers signed
independent contractor agreements but then filed a lawsuit saying this was the
wrong employment classification and that they were owed overtime pay. Judge
Sheridan first ruled, back in 2012, that the plaintiffs were independent
contractors, partially due to the agreements they signed stating as such. The
case was appealed to the U.S. Court of Appeals for the Third Circuit, which
passed it to the New Jersey Supreme Court, where it was determined that the ABC
test must be used to decide employment status.
Under the ABC test, a worker is
considered an employee unless these three things can be proved:
- The employer does not have control
or direction over the worker’s services. - The worker provides services that
are outside the scope of the employer’s business and does not perform this work
onsite at the business. - The worker is an established,
independent professional in the industry who is capable of taking on work from
other clients.
Judge Sheridan ruled that the
drivers in question were in fact employees, finding that Sleepy’s substantially
controlled their work, that the drivers’ delivery services were essential to
Sleepy’s business, and that the drivers could not realistically take on other
business from other clients. Now he must determine whether they are owed
overtime pay and reimbursement for expenses, as well as whether they can
represent a class of Sleepy’s drivers.
The NFIB Small Business Legal Center filed an amicus
brief in support of Sleepy’s position, warning that use of the ABC
test is restrictive, doesn’t respect business formalities, and would disproportionately
burden small businesses and solopreneurs.
