On July 2, 2021, New Jersey's Appellate Court upheld a ruling in Kennedy v. Weichert finding that the State's ABC Test for deciding workers' employment status applies to classification disputes made under New Jersey's Wage Payment Law ("WPL"). The Court's ruling comes just days before a flurry of recently enacted laws targeting misclassification and further represents a visible shift in New Jersey's classification landscape. The Court's decision in Kennedy could impact real estate salespeople currently classified as independent contractors who work under similar conditions and whose states utilize the ABC Test approach to classification. Notably, the Appellate Division declined to render a decision at this point in the litigation regarding application of the ABC test after August 10, 2018, when certain amendments to the Brokers Act became effective, finding that a full factual record was required before it could opine on this issue.
The case arose between James Kennedy, a fully commissioned real estate salesperson, and his broker, Weichert Realtors. Upon contracting to be a real estate salesperson in August 2012, Weichert classified Kennedy as an independent contractor. Like all other fully commissioned salespeople working under the Weichert name, Weichert made deductions from commissions and/or required that Kennedy pay for certain expenses including, but not limited to, marketing fees, MLS fees, trade association dues, mail and travel cost, and health and errors and omission insurance. Kennedy filed a claim six years later claiming that the expenses deducted his from commission violated the WPL.
At the trial court level, Weichert moved to dismiss the claim arguing that the WPL does not apply to fully commissioned real estate salespeople. In denying Weichert's motion, the trial court relied heavily on the 2015 Supreme Court decision Hargrove et. al. v. Sleepy's LLC, 106 A.3d 449 (N.J. Sup. Ct. 2015) which "conclude[d] that the 'ABC' test . . . governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage-payment or wage-and-hour claim."
On appeal, Weichert argued that despite the Hargrove Court's broadly-worded holding, the ABC Test did not control whether a fully commissioned real estate salesperson is an employee or independent contractor under the WPL. In support, Weichert asserted two arguments. First, Weichert claimed the WPL did not apply to real estate salespeople as a matter of law because the state's Unemployment Compensation Law ("UCL"), which utilizes the ABC Test, expressly exempts real estate salespeople from coverage. Second, Weichert claimed that applying the ABC Test to the WPL would be inconsistent with the Brokers Act's 2018 amendments which allow salespeople to contract with their broker as independent contractors.
UCL Exemption Does Not Prohibit ABC Test Under WPL
In rejecting Weichert's first argument, the Court began its analysis by noting "what matters most is that an individual 's status be measured in the light of the purpose to be served by the applicable legislative program or social purpose to be served." In determining that the UCL's exemption did not prohibit application of the ABC Test to determine status under the WPL, the Court noted that no parallel exemption existed in the WPL and emphasized that given the common employee protection goals of the WPL and Wage and Hour Law ("WHL"), the general test for independent contractors should be the same.
The Brokers Act Amendments Are Not Curative or Retroactive
The Court also rejected Weichert's second argument. The Court first acknowledged that any inconsistency created by the Brokers Act arose on and after August 10, 2018 – the effective date of the Act's amendments which allowed for sales people to enter into written agreements defining the nature of the business affiliation as one of independent contractor status. Where Kennedy's claim provided for a time period beginning in 2012, the Court held that nothing in the legislative history suggested that the amendment was curative or retroactive as to apply to the period prior to August 10, 2018. Accordingly, the Court determined that Hargrove's import should control. With respect to the time period after the enactment of the amendments, the Court declined to declare whether the Act impacted Kennedy's claim and sent the case back to the trial court for those issues to be addressed after developing the record. Additionally, the Court did not render a decision one way or another as to whether application of the ABC Test rendered Kennedy an employee or independent contractor. Rather, the Court's decision in Kennedy holds only that classification disputes made under the WPL are to be assessed using the ABC Test approach.
As this matter progresses through the court system, its outcome could have implications for the real estate sector in New Jersey and at large. The only thing that is certain is that, absent a specific statutory exemption, for independent contractor's in New Jersey the ABC test rules the day, at least for now.
For more information about this important development, please contact the author or the Saul Ewing attorney with whom you are regularly in contact.