August 2022: New Jersey High Court Says Separate Corporate Structure Not Enough to Establish Independent Contractor Status

25 Aug

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Update Applicable to:
All employers in the state of New Jersey.

What happened?
On August 2, 2022, the Supreme Court of New Jersey handed down a key ruling in the East Bay Drywall, LLC. v. Department of Labor and Workforce Development that significantly impacts how companies across the state should classify workers as independent contractors.

What are the details?

In 2013, “East Bay,” a drywall installation business, ceased reporting wages to the Department of Labor and Workforce Development. As a result, an auditor for the Department conducted a status audit to determine whether the workers hired by East Bay between 2013 and 2016 were independent contractors or employees such that there must be ongoing contributions towards unemployment compensation and temporary disability benefits.

In the East Bay Drywall, LLC. v. Department of Labor and Workforce Development case, the Supreme Court of New Jersey held that an independent contractor’s establishment as a separate corporate structure in the form of a single member limited liability company (LLC) or corporation accompanied by a certificate of insurance and publicly available business registration information was not alone sufficient to establish independent contractor status under the New Jersey Unemployment Compensation Act.

Below are links to key case parts, such as more background information and the Supreme Courts’ findings, along with key takeaways for employers provided by the law firm Greenbaum Rowe Smith & Davis LLP.

The ABC Test

Background Facts of the Easy Bay Drywall Case

New Jersey Supreme Court Decision

Key Takeaway for Employers

For more information, please see the links below:

East Bay Drywall, LLC. v. Department of Labor and Workforce Development

Article 1Article 2Article 3

What do employers need to do?
Employers should review the links provided above as the ruling of this case serves as a reminder to employers to re-evaluate their worker’s status to ensure that they are classified correctly to ensure prevention of worker misclassification can potentially lead to substantial penalties for employers, owners, and managers.

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