On July 2, 2021, the New Jersey Court of Appeals upheld the decision in Kennedy vs. Weichert Finding that the state ABC test for determining workers’ employment status applies to classification disputes arising under the New Jersey Payroll Law (“WPL”). The court’s decision was made just a few days before the squall recently passed laws aimed at misclassification and further represents a visible shift in the classification landscape of New Jersey. Court decision in Kennedy may affect real estate sellers who are currently classified as independent contractors who operate under similar conditions and whose states use the ABC Test approach for classification. Notably, the Appeals Division declined to rule at this stage of the proceedings regarding the application of the ABC test after August 10, 2018, when some amendments to the Brokers Act entered into force, finding that a full factual record was required before it could express its opinion. about this question.
The case arose between James Kennedy, a fully authorized real estate seller, and his broker, Weichert Realtors. Following his contract as a real estate seller in August 2012, Weichert classified Kennedy as an independent contractor. Like all other fully authorized sellers operating under the Weichert name, Weichert made commission deductions and / or required Kennedy to pay certain expenses, including but not limited to marketing fees, MLS fees, trade association fees, postage and travel expenses, and also insurance for health and errors and omissions. Kennedy filed a lawsuit six years later, claiming the fees deducted from the commission violated the WPL.
At the level of the court of first instance, Weichert dropped the claim, arguing that the WPL does not apply to real estate sellers who received a full commission. In rejecting Weichert’s motion, the trial court relied on a 2015 Supreme Court decision. Hargrove et. al. v. LLC “Slipy”, 106 A.3d 449 (NJ Sup. Ct. 2015) which “conclude[d] that test is “ABC”. … … determines whether the claimant is an employee or an independent contractor for the purpose of resolving wage or hourly wage claims. “
On appeal, Weichert argued that despite Hargrove The court’s broadly worded ruling, ABC Test, did not control whether a fully authorized property seller is an employee or an independent contractor under the WPL. Weichert made two arguments in support. First, Weichert said the WPL does not apply to home sellers by law because the State Unemployment Compensation Act (UCL), which uses the ABC test, explicitly exempts home sellers from insurance coverage. Second, Weichert argued that applying the ABC test to the WPL would be incompatible with the 2018 Brokers Act amendments that allow sellers to enter into contracts with their broker as independent contractors.
UCL exclusion does not prohibit WPL ABC test
Rejecting Weichert’s first argument, the Court began its analysis by stating that “the most important thing is that a person’s status is measured in the light of the purpose for which the relevant legislative program should serve, or the social purpose that should be served”. Having determined that the UCL exemption does not prohibit the use of the ABC test for determining status under the WPL, the Court noted that there are no parallel exemptions in the WPL and stressed that, given the general protection objectives of WPL employees and the Wages and Hours Act (“WHL “), The general test for independent contractors should be the same.
Amendments to the Brokers Act are not curative or retroactive
The court also rejected Weichert’s second argument. The court first found that any inconsistency created by the Brokers Act arose on and after August 10, 2018, the effective date of amendments to the Act that allowed sellers to enter into written agreements defining the nature of the business affiliation as one of the independent contractors. status. Where Kennedy’s lawsuit envisioned a time period beginning in 2012, the Court ruled that nothing in the history of the law suggests that the amendment was curative or retroactive for the period prior to August 10, 2018. Accordingly, the Court held that Hargrove’s import must control. Regarding the time period after the amendments entered into force, the court refused to declare whether the law affected Kennedy’s claim and sent the case back to the trial court to review these issues after the transcript was drawn up. In addition, the court has not ruled anyway as to whether the application of the ABC test made Kennedy an employee or an independent contractor. Rather, a court decision in Kennedy states only that classification disputes arising under the WPL should be assessed using the ABC Test approach.
As the case is dealt with by the judiciary, its outcome could have implications for the New Jersey real estate sector and more generally. The only thing that can be said for sure is that in the absence of a specific statutory exemption for an independent contractor in New Jersey, the ABC test is valid today, at least for now.