On August 2, 2022, the New Jersey Supreme Court handed down its decision in East Bay Drywall, LLC v. Dept. of Labor and Workforce Development, providing important insight into the classification of independent contractors by holding that sixteen alleged subcontractors of East Bay Drywall, LLC were, in fact, employees and not independent contractors under New Jersey’s ABC test.

The ABC Test

The ABC test is a three-pronged analysis which “analyzes whether the individuals are under the direction and control of the employer, whether the work is outside of the usual course of business for which such service was performed, and finally, whether such individual is customarily engaged in an independently established trade, occupation, profession or business.”

The three prongs are:

• Prong A – a worker is “free from control or direction over the performance” of their services;
• Prong B – the service performed “is either outside the usual course of the business for which such service is performed” or it is performed “outside of all the places of business” of the employer; and
• Prong C – the worker is “customarily engaged in an independently established trade, occupation, profession or business”.

All three prongs must be satisfied for a worker to be considered an independent contractor and the party challenging the classification has the burden to establish all three prongs of the ABC test. Classification under the ABC test is critical to employers because they have greater...

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