ABC Test No Good for Real Estate Salespeople

Recently, a New Jersey Appellate Panel clarified that the widely used “ABC Test” for distinguishing employees from independent contractors is inapplicable to real estate agents. See Kennedy v. Weichert Co., No. A-0518-19, 2023 N.J. Super. LEXIS 12 (App. Div., Jan. 30, 2023). James Kennedy II, on behalf of himself and those similarly situated (collectively, “Plaintiffs”), alleged that Weichert Company had violated a provision of New Jersey’s Wage Payment Law (“WPL”), by “deducting marketing, insurance, and other expenses" from Plaintiffs’ wages without authorization. Kennedy, 2023 N.J. Super. LEXIS 12 at *2; see also N.J.S.A. § 34:11-4.4. Weichert moved to dismiss the underlying action, arguing that commissioned real estate salespersons are exempt from protection under the WPL. 2021 N.J. Super. Unpub. LEXIS 1354 at *1. The trial court judge denied the motion "after declaring that the 'ABC test' under the [New Jersey] Unemployment Compensation Law (“UCL”), N.J.S.A. 43:21-19(i)(6)(A), (B), and (C), determines a real estate salesperson's status as an independent contractor under the WPL." Kennedy, 2023 N.J. Super. LEXIS 12 at *3. This decision was based on the Court’s ruling in Hargrove, "that the 'ABC' test derived from . . . [the UCL], governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage-payment or wage-and-hour claim." Id. (citing Hargrove v. Sleepy's, LLC, 220 N.J. 289, 295 (2015)). Weichert appealed, and the New Jersey Supreme Court (249 N.J. 66) eventually tasked the Appellate Panel with determining how retroactively applied amendments to New Jersey's Real Estate Brokers and Salesmen Act (“Brokers Act”) affected the proposed class action. N.J.S.A. §§ 45:15-1 to - 29.5. In affirming the Law Division order, the Panel declined to put forth a replacement test “[b]ecause of the paucity of the record.” Id. at * 26-*27 (citing MacDougall v. Weichert, 144 N.J. 380, 388 (1996)).

The question of whether a worker is an employee or independent contractor is a crucial distinction for New Jersey workers, as the state does not provide independent contractors with benefits for disability, unemployment, family leave, or protections for minimum wage or overtime premiums. Many employment statutes provide circular or vague definitions of “employee,” so courts hearing issues on worker classification utilize fact-intensive common law tests to provide clarity. Frequently used in state unemployment insurance statutes, and incorporated in the UCL, is the “ABC Test.” Under this test, an agent is presumed to be an employee, unless the principal can show that: (1) the individual is free from control and direction, both under the terms of their contract of service, and in fact; (2) such service is performed outside the usual course of the principal’s business; and (3) the individual is customarily engaged in an independently established trade, occupation, profession or business. See N.J.S.A. § 43:21-19(i)(6).

The Appellate Panel concluded that application of the ABC Test is contrary to the plain language of the Brokers Act, because the test “compels the conclusions that plaintiff[s], indeed all fully commissioned salesperson, are employees of their broker regardless of how they defined their relationship.” Kennedy, 2023 N.J. Super. LEXIS 12 at *25. The Panel based its reasoning on a previous decision in which a real estate salesperson brought a common law wrongful discharge suit against their former employer. See MacDougall, 144 N.J. at 388 (1996) (citing Pierce v. Ortho Pharm. Corp., 84 N.J. 58 (1980)). The initial question in MacDougall was whether the plaintiff was an employee. Id. Critically, the court reasoned that the “categorization of a working relationship depends not on the nominal label adopted by the parties, but rather on its salient features and the specific context in which the rights and duties that inhere in the relationship are ultimately determined." Id.

While the Appellate Panel held that the ABC test is not the proper method for determining whether real estate salespeople are employees or independent contractors, it did not foreclose the possibility that real estate salespeople may be employees. In fact, the Court specifically held this out as a possibility, by denying Weichert’s motion to dismiss. Alternatives to the ABC Test do exist, and generally consider factors like payment method, a principal’s control over work tasks, and the degree of permanence of the working relationship. However, rather than setting forth what method should be utilized to determine the employment status of real estate salespeople, the Court remanded the matter to the Law Division for further development of the record. What can be gleaned from the recent decision is that a real estate salesperson’s employment status is not determined solely by the terms of their employment agreement. Observers should stay tuned for what could be a pivotal ruling in the world of real estate worker employment law.

To read more about worker misclassification, click here: https://www.nj.gov/labor/worker-protections/myworkrights/independentcontractors.shtml. If you think your employer is shirking their duties by incorrectly counting you as an independent contractor, you may want to contact a Hyderally & Associates attorney today.

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