249 A.3d 872
N.J. Super. Ct. App. Div.2021Background
- East Bay Drywall (partnership) hired drywall installers and issued 1099s; Department audited 2013–2016 and concluded 16 installers were misclassified as independent contractors.
- Installers worked at builders' job sites (not East Bay offices), furnished their own tools, could decline jobs, and East Bay supplied drywall/materials and reviewed blueprints; East Bay collected certificates of insurance from subcontractors.
- Auditor contacted 12 business entities (many ceased operations) and four individuals; two individuals admitted lack of other business activity; auditor assessed $42,120.79 plus penalties and interest.
- ALJ found most disputed installers satisfied ABC Test parts A and B and were bona fide independent businesses under part C, except three individuals (Martin, Serra, Cuevas) who failed part C; ALJ reversed most of the audit assessment.
- Commissioner reversed the ALJ, reinstated auditor’s findings treating sixteen installers as employees (relying in part on single-member LLC tax/regulatory treatment), and assessed contributions; East Bay appealed.
- Appellate Division: affirmed liability for five (three individuals, JEC Construction, Caslo Drywall) who failed part C; reversed as to remaining entities; rejected categorical reliance on single-member LLC tax/regulatory "disregarded entity" status; remanded for recalculation.
Issues
| Issue | East Bay's Argument | Department's Argument | Held |
|---|---|---|---|
| Part A — Control: whether East Bay exercised sufficient control to create employment | Installers were free from control/direction (could decline jobs, no supervision, used own tools) | East Bay reserved control and effectively directed work | Court: Agreed with ALJ — Part A met for most installers (no employer-level control) |
| Part B — Place/usual course: whether services were within East Bay's usual course or places of business | Work occurred at customers' sites, outside East Bay places of business | Department contended Part B not satisfied | Court: Agreed with ALJ — Part B satisfied (jobs at customers' sites) |
| Part C — Independently established business: whether installers had stable, independent enterprises | Installers produced COIs and business documentation; were separate businesses during audit years | Many entities lacked records, ceased filings, or individuals had no other clients; thus not bona fide | Court: Affirmed Commissioner as to five (three individuals, JEC, Caslo) who failed Part C; reversed as to remaining entities shown by ALJ to be bona fide |
| Effect of single‑member LLC tax/regulatory "disregarded entity" status | LLCs should be evaluated under ABC Test; tax/regulatory treatment not dispositive | Commissioner relied on N.J. tax/regulation and federal rules treating single‑member LLCs as disregarded employers | Court: Rejected categorical rule; state tax/regulation and federal tax classifications do not control ABC Test analysis |
Key Cases Cited
- Carpet Remnant Warehouse, Inc. v. N.J. Dep't of Labor, 125 N.J. 567 (1991) (explains and applies the ABC Test for UCL purposes and its remedial construction)
- Trauma Nurses, Inc. v. Bd. of Rev., 242 N.J. Super. 135 (App. Div. 1990) (applied ABC Test to temporary nursing placements; control and business independence factors)
- Hargrove v. Sleepy's, LLC, 220 N.J. 289 (2015) (confirmed ABC Test applicability under New Jersey wage laws)