New Jersey Unemployment Compensation Benefits for Individual Employed or Paid as an Independent Contractor

In certain circumstances, even individuals who were compensation or treated as independent contractors may be eligible for New Jersey unemployment compensation benefits. Pursuant to the New Jersey Unemployment Compensation Law, N.J.S.A. 43:21-1 to 24.4, individuals are deemed eligible for unemployment compensation benefits, even where they were treated as an independent contractor for compensation purposes, unless all of the criteria of the so-called “ABC test” set forth in N.J.S.A. 43:21-19(i)(6)(A),(B),(C) is satisfied. All three parts of the test must be met in order for the Claimant to be disqualified and the failure to establish any one of the three criteria renders the Claimant eligible for benefits. See Philadelphia Newspapers, Inc. v Board of Review , 397 N.J. Super. 309 (App. Div. 2007).

Pursuant to N.J.S.A. 43:21-19(i)(6):

(6) Services performed by an individual for remuneration shall be deemed to be employment subject to this chapter (R.S. 43:21-1 et seq.) unless and until it is shown to the satisfaction of the division that:

(A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and

(B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business. N.J.S.A. 43:21-19(i)(6),(emphasis added).

To be disqualified for benefits, Part A of the test requires a showing that the provider of services “has been and will continue to be free from control or direction over the performance of such services.” N.J.S.A. 43:21-19(i)(6)(A). The test requires that the employer has not exercised control in fact and also that the employer has not reserved the right to control the individual’s performance. See Carpet Remnant Warehouse v. Department of Labor , 125 N.J. Super. 567 (1991).

Assuming that there is a lack control, Part B of the ABC test requires that either that the services performed are outside the employer’s usual course of business or that the service is performed outside of all of the employer’s places of business. N.J.S.A. 43:21-19(i)(6)(B). Satisfaction of either of the B standard’s alternatives is a prerequisite for avoiding designation as an employee. Id.

The courts have noted that the first phrase of the Part B test seeking to determine whether the service was “outside the usual course of business” is “elusive” and therefore have focused more on the second phrase on the Part B test relating to whether the services were performed outside the employer’s places of business. Id. See Schomp v. Fuller Brush Co. , 124 N.J.L. 487, 491 (1940), aff’d, 126 N.J.L. 368 (E & A 1941) (accepting concession that door-to-door salespersons performed services outside employer’s places of business).

To the extent there is a lack of control and a demonstration that the services were performed outside the employer’s place of business, Part C of the ABC test requires that a person have been customarily engaged in an independently-established trade, occupation, profession, or business. This standard “calls for an enterprise that exists and can continue to exist independently of and apart from the particular service relationship”. See Carpet Remnant Warehouse v. Department of Labor , 125 N.J. Super. 567 (1991).

The enterprise must be one that is stable and lasting–one that will survive the termination of the relationship.” Thus, if the person providing services is dependent on the employer, and, on termination of that relationship would join the ranks of the unemployed, the C standard is not satisfied. Id.

Applying these principles, the court in Carpet Remnant Warehouse v. Department of Labor , 125 N.J. Super. 567 (1991) held that the C standard provides the closest connection between the obligation to pay taxes and the eligibility for benefits. The court noted that in cases in which satisfaction of the C standard convincingly demonstrates a person’s ineligibility for unemployment benefits, it would be inappropriate to apply the A or B tests restrictively and mechanically if their applicability is otherwise uncertain.

In that case, the court held that the Commissioner applied too restrictive an interpretation to the phrase “free from control or direction over the performance of such service” and held that various factors should be considered in determining whether a person is “free from control” under the A standard. The court noted that specific factors indicative of control include whether the worker is required to work any set hours or jobs, whether the enterprise has the right to control the details and means by which the services are performed, and whether the services must be rendered personally.

The court noted that the Commissioner stated that the C standard “requires a clear showing that a viable, independent business exists which would withstand the termination of the relationship in question.” Finding that there was insufficient evidence in the record, the court remanded the matter to determine whether the Claimants in that case could have “continue[d] to exist independently of and apart from” their relationship with CRW. Id.

Following the decision in Carpet Remnant Warehouse , the court in Philadelphia Newspapers, Inc. v. Board of Review , 397 N.J. Super. 309 (App. Div. 2007) affirmed the final decision of the Board of Review holding Claimant eligible for unemployment benefits on the basis that the employer failed to prove that Claimant was an independent contractor under the ABC test set forth in N.J.S.A. 43:21-19(i)(6)(A)(B)(C).

In that case, the employer engaged Claimant’s services to deliver two (2) newspapers to the Company’s home delivery customers along a designated delivery route in Southern New Jersey. Claimant was required to execute an “Independent Home Delivery Service Contractor Agreement” which designated Claimant as an Independent Service Contractor. Moreover, the court noted that paragraph 1a of the Agreement designated Claimant as a “self-employed independent contractor and not an employee of PNI” who was “free to engage in any other business activities [Claimant] desires (including services for other publications) so long as they did not interfere with the timely deliverance of the Inquirer and the [p]eriodicals and [Claimant’s] performance of the terms of this Agreement…”

In holding Claimant eligible for benefits, the Board found that the fact that the Claimant was paid on a 1099 Form and had executed an Agreement which characterized him as being an independent contractor did not mean that he was an independent contractor. The Board found that because Claimant was not engaged in an independently established trade, as required by N.J.S.A. 43:21-19(i)(b)(c), he was eligible for unemployment benefits.

On appeal to the Superior Court, the Appellate Division held that although the employer proved prong A, or the “control test” provision of the statute, the Court agreed with the Board’s Decision that the Company failed to prove prong C, or the “independent-business test” provision of the statute. The court rejected the Company’s contention that Claimant maintained an independent business simply because Claimant was free to contract with newspapers to perform delivery services both during the term of his contract with PNI and afterwards.

The Court emphasized that part C of the test “calls for an enterprise that exists and can continue to exist independently of and apart from the particular service relationship,” noting that the enterprise must be one that is stable and lasting – – one that will survive the termination of the relationship.”

The court held that if the Claimant is “dependent on the employer, and on termination of that relationship for joining the ranks of the unemployed, the [prong C] standard is not satisfied”. The Court held that stated another way, prong C has been proven “when a person has a business, trade, occupation or profession that will clearly continue despite termination of a challenged relationship”.

The court noted that the record was devoid of evidence demonstrating that Claimant was customarily engaged in an independently established trade or activity apart from the mere delivery of PNI’s newspapers “at the time of rendering the services involved”. Moreover, the court noted that on termination from employment, Claimant joined the ranks of the unemployed and accordingly prong C was not satisfied.