The New Jersey so-called ABC test for determining independent contractor status is one of the toughest in the country and is applied in a strict manner by the New Jersey Department of Labor.  But, evidently, there are exceptions to this otherwise ironclad rule.  An appellate court has just decided that this ABC test does not apply to claims lodged by a fully commissioned real estate salesperson because the statute that governs their conduct precludes the use of this test on the issue of independent contractor status.  The case is entitled Kennedy v. Weichert Co. and issued from the NJ Appellate Division.

The plaintiff’s theory was that his employer had violated the NJ Wage Payment Act “by deducting marketing, insurance, and other expenses” from his compensation without his agreeing to the deductions.  The Company moved to dismiss the case arguing that “that fully commissioned real estate salespersons are independent contractors, whom the WPL does not cover.”  The motion to dismiss was denied by the lower court, which followed the NJ Supreme Court decision in Hargrove v. Sleepy’s LLC, a 2015 NJ Supreme Court decision that held that the ABC test was the standard for making these determinations. 

This case has had a lengthy history, including the Company being granted leave to appeal to the Supreme Court concerning amendments to the Brokers Act.  However, during the pendency of the Company appeal, the State Legislature added a new provision, Section 3.2, to the Brokers Act.  The Governor conditionally vetoed the bill, requesting that it be changed to “more directly satisfy its intent.”  The Governor also wanted to “clarify that the Brokers Act should be given retroactive effect.”  The Legislature adopted the changes in January 2022 and the NJ Supreme Court then remanded the matter back to the Appellate Division.

The Appellate Division noted that “it is undisputed that we must apply Section 3.2 retroactively; it therefore affects the entire time frame of plaintiff’s WPL claim.”  Although the Company wanted declaratory relief that the ABC test did not apply, the Court went further than that, stating that “we conclude the court’s holding in Hargrove does not apply to WPL claims asserted by fully commissioned real estate salespersons because the Brokers Act forecloses application of the ABC test.”

The Appellate Division also held that the ABC test did not pertain to the analysis of whether a real estate agent was an independent contractor.  The Court also noted that its decision was not an undermining of the Hargrove holding because that case involved a different classification of employee, i.e. delivery truck drivers.  The Court stated that “no other statutory scheme, much less a statutory scheme adopted for a highly regulated industry such as the real estate industry, needed to be harmonized with the court’s decision to apply the UCL’s ABC test to WPL claims.  Nor did the Hargrove court address any employment relationship, such as real estate salespersons, within the statutory exceptions to the ABC test contained in the UCL.”

The Takeaway

The ABC test is a very strict, onerous, test for an employer to prevail upon. As I have said many times, the biggest stumbling block usually is Prong C, i.e. showing that the person is in an independently established business. This decision, although a limited incursion into the intransigence of that ABC test, represents a good start.

Hopefully, there will be others…