In a potentially significant decision following the New Jersey Supreme Court’s ruling in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), a New Jersey appellate panel held, in Garden State Fireworks, Inc. v. New Jersey Department of Labor and Workforce Development (“Sleepy’s”), Docket No. A-1581-15T2, 2017 N.J. Super. Unpub. LEXIS 2468 (App. Div. Sept. 29, 2017), that part C of the “ABC” test does not require an individual to operate an independent business engaged in the same services as that provided to the putative employer to be considered an independent contractor.  Rather, the key inquiry for part C of the “ABC” test is whether the worker will “join the ranks of the unemployed” when the business relationship ends.

In Garden State Fireworks, the panel analyzed whether pyrotechnicians hired by a fireworks company to conduct fireworks displays were properly classified as independent contractors rather than employees under New Jersey’s Unemployment Compensation Law (UCL).  The panel’s analysis was guided by the “ABC” test, which presumes that a worker is an employee, unless the employer can demonstrate three factors.  As stated in Sleepy’s, these factors are drawn from N.J.S.A. 43:21-19(i)(6), which asks whether:

(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 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.

During a routine audit by the New Jersey Department of Labor and Workforce Development (the “Department”), the fireworks company was found to have misclassified certain pyrotechnicians as independent contractors. The company appealed the Department’s order, and it was reversed by an Administrative Law Judge (ALJ).  In a final administrative action, however, the Commissioner of the Department rejected the ALJ’s findings and agreed with the auditor’s initial assessment.  The company appealed from the Commissioner’s decision.  After reviewing the hearing record from the ALJ, the panel reversed the Commissioner’s decision and concluded that all of the factors of the “ABC” test had been satisfied.

As to part A, the panel found that there was no evidence to support the conclusion that the company controlled the technicians’ performances. On the contrary, the facts suggested that the technicians were given “virtually complete control” over the fireworks displays.  As to part B, the panel stated that the fireworks displays were performed offsite and outside of all of the company’s places of business. The panel concluded that part C was satisfied because the hearing testimony revealed that the technicians only performed shows during one or two weeks in a year, and none of the technicians relied on the shows as their primary source of income.  The technicians were either retirees or full-time employees in other endeavors when not performing fireworks displays, and were not employed independently to provide the same service.

In applying the “ABC” test, the panel rejected the Commissioner’s interpretation of part C to require an “independently established enterprise or business,” even though this interpretation appears to be consistent with other unpublished appellate division decisions applying the “ABC” test in different factual contexts post-Sleepy’s.  For example, in N.E.I. Jewelmasters of New Jersey, Inc. v. Board of Review, Docket No. A-2333-14T3, 2016 N.J. Super. Unpub. LEXIS 1456 (App. Div. June 24, 2016), a panel held that “[s]atisfaction of [part] C requires a clear showing that a viable independent business exists apart from the particular contractual relationship at issue.”  The panel found that part C was not satisfied in that case because: the sales/marketing employee lacked “an independently established business”; she worked solely for one employer; and “her termination rendered her unemployed.”  Moreover, in ABS Group Services v. Board of Review, Docket No. A-1847-12T3, 2016 N.J. Super. Unpub. LEXIS 989 (App. Div. Apr. 27, 2016), a panel required evidence that the employee, a certified boiler and pressure vessel inspector, was engaged in an independent business to satisfy part C.  Because the employee was dependent upon the employer for his livelihood and did not have a business of his own, the panel concluded that part C was not satisfied.

In Garden State Fireworks, the panel construed “independent business” in part C to include separate employment that continues despite the termination of the challenged relationship.  In so finding, the panel relied on Philadelphia Newspapers, Inc. v. Board of Review, 397 N.J. Super. 309, 323 (App. Div. 2007), for the assertion that part C is satisfied “when a person has a business, trade, occupation, or profession that will clearly continue despite termination of the challenged relationship.” Philadelphia Newspapers, in turn, relies on Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991). Carpet Remnant cites to Trauma Nurses, Inc. v. Board of Review, 242 N.J. Super. 135, 148 (App. Div. 1990), noting parenthetically that nurses are engaged in an independently established profession that can satisfy part C where it can be shown that they work for brokers and/or hospitals performing varying types of work, such as part-time, full-time, and shift work.

Sleepy’s recites a similar interpretation of part C, although Sleepy’s is not cited in Garden State Fireworks.  The court in Sleepy’s indicated that part C “calls for an enterprise that exists and can continue to exist independently of and apart from the particular service relationship,” quoting Gilchrist v. Division of Employment Security, 48 N.J. Super. 147 (App. Div. 1957).  Notably, the Sleepy’s court recited language from case law that uses the broader term “enterprise” instead of “independently established business,” which is a phrase that implies that the worker in question must be a business owner.  Further, like Garden State Fireworks, Sleepy’s notes that part C requires “a profession that will plainly persist despite the termination of the challenged relationship,” citing to Trauma Nurses.  Moreover, the Sleepy’s court stated that if the individual joins “the ranks of the unemployed,” part C is not satisfied.  Thus, the panel’s interpretation of part C’s “independent-business test” in Garden State Fireworks appears to be consistent with court’s interpretation of part C in Sleepy’s.

In addition, the panel did not interpret part C to require that the independently established profession be of the same nature as the service provided to the putative employer. This requirement exists in the “ABC” test of some states, such as Connecticut, Delaware, and Massachusetts, although no such requirement has been found under New Jersey law pursuant to N.J.S.A. 43:21-19(i)(6)(C) or case law.  While Trauma Nurses is an example of a case where an appellate panel found that part C was satisfied where the putative employees were able to provide the same service in the same industry following the conclusion of the relationship with the putative employer, the panel in Trauma Nurses did not hold that providing the same service in the same industry is a necessary component of part C.  The panel in Garden State Fireworks also did not find service in the same industry to be necessary to satisfy part C, implicitly stating that an employee who only works for a company one to three times a year while working full time elsewhere is not an employee of that company under part C even if the full-time employment is in a different industry.  Likewise, the ALJ discerned that part C does not require that the “independently established trade, occupation, profession or business . . . be part of the same industry.”

Another noteworthy observation from Garden State Fireworks is that the panel found, without directly addressing the issue, that pyrotechnicians who were retirees could satisfy part C.  Plainly, a retiree, by definition, is not engaged in an “an independently established trade, occupation, profession or business.”  Nevertheless, if the panel would have addressed the issue, it may have concluded, based on Carpet Remnant, that the retirees were not employees because, being retired from employment, they were not economically dependent on the fireworks company and, thus, would not join the ranks of the unemployed upon termination of the challenged relationship.

In sum, the panel’s analysis highlights that the application of the “ABC” test is a fact-sensitive inquiry. Employers who fail the “ABC” test of the UCL may be liable for unemployment compensation and disability benefits.  Significantly, the “ABC” test, as held in Sleepy’s, is also used to determine independent contractor status under New Jersey Wage and Hour Law and New Jersey Wage Payment Law.  Thus, an employer’s failure to satisfy the “ABC” test with respect to its independent contractors can further result in liability for unpaid wages, overtime, and employee benefits.  A principal who engages the services of an independent contractor should periodically review such engagement to ensure compliance with New Jersey law.

As a follow-up to our blog post from April 24, 2017, the New York Court of Appeals has issued its decision in Griffin v. Sirva, addressing the questions certified by the U.S. Court of Appeals for the Second Circuit regarding the scope of liability for employment discrimination based on an individual’s criminal history under the New York State Human Rights Law (“NYSHRL”). In its May 4, 2017 opinion, the Court of Appeals held that only a worker’s employer may be liable for direct discrimination under NYSHRL § 296(15), while other entities who do not qualify as employers may be liable for aiding and abetting an employer’s discriminatory acts under NYSHRL § 296(6).

In Griffin v. Sirva, defendant Allied Van Lines (“Allied”) and its corporate parent Sirva, Inc., had contracted with Astro Moving and Storage Co. (“Astro”) to have Astro’s employees provide packing and moving services on an independent contractor basis at the homes of Allied’s customers. Plaintiffs argued that defendants should be held liable for violating the NYSHRL even though they were not plaintiffs’ direct employer, because Allied had required plaintiffs to pass a background check before being assigned to its jobs. When plaintiffs’ background checks revealed prior convictions for sexual offenses against young children, Astro terminated their employment because those convictions disqualified plaintiffs from performing work for Allied, which constituted 70 to 80 percent of Astro’s business.

The Second Circuit had certified three questions regarding the scope of liability for discrimination based on a worker’s criminal history under the NYSHRL: (1) does NYSHRL § 296(15), prohibiting discrimination based on criminal convictions, limit liability to an aggrieved party’s “employer”; (2) if so, does the term “employer” include entities that are not an aggrieved party’s “direct employer,” but who exercise a significant level of control over the direct employer’s discrimination policies and practices; and (3) does NYSHRL § 296(6), providing for “aiding and abetting” liability, apply to an out-of-state entity that requires its New York State agent to discriminate based on a worker’s criminal history. In addressing these questions, the Court of Appeals reformulated the second and third queries as discussed below, to make them more broadly applicable beyond the parameters of this particular case. Five judges supported the majority opinion, while one judge dissented.

Question 1: Only an Employer May Be Liable for Direct Discrimination

The NYSHRL states that it “shall be an unlawful discriminatory practice for any person, agency, bureau, corporation or association” to deny employment based on an individual’s prior criminal conviction “when such denial is in violation of the provisions of article twenty-three-A of the correction law.” While this statutory language would appear to extend liability to “any” person or entity, not just an individual’s employer, the court found it significant that “liability under section 296(15) arises only upon a violation of [New York Correction Law Article 23-A (“Article 23-A”)].” Article 23-A prohibits a “public or private employer” from denying employment based on a criminal conviction unless, after analyzing eight specified factors, the employer can demonstrate that there is either a direct relationship between the criminal offense and the position sought or that granting employment would pose an unreasonable risk to the property or safety of others. Given this language, the court held that, “[b]ecause it incorporates Article 23-A by reference, section 296(15) of the Human Rights Law likewise limits liability to a public or private employer.”

Question 2: Common Law Principles, Especially Control, Determine Employer Status

The Court of Appeals questioned the assumption inherent in the Second Circuit’s second certified question, that “a significant level of control” over an employer’s “discrimination policies and practices” might be sufficient to confer employment status on a third party. Because “other factors are relevant to that determination,” the court reformulated the second question to read: “[i]f [liability under] Section 296(15) is limited [to an employer], how should courts determine whether an entity is the aggrieved party’s ‘employer’ for the purposes of a claim under Section 296(15)?”

Noting that neither the NYSHRL nor Article 23-A contains a substantive definition of “employer,” the court referred to both federal and New York case law holding that, in the absence of statutory guidance, common law principles should be used to determine employer status. Under applicable New York precedent, employer status is based on four relevant factors: (1) the selection and engagement of the worker; (2) the payment of salary or wages; (3) the power of dismissal; and (4) the power of control over the worker’s conduct. The Court of Appeals accordingly held that these four factors should be used to “determine who may be liable as an employer” under the NYSHRL, “with greatest emphasis placed on the alleged employer’s power ‘to order and control’ the employee in his or her performance of work.”

Question 3: Out-of-state Non-Employers May Be Liable for Aiding and Abetting Discrimination

The Court of Appeals indicated that the third certified question, regarding whether “an out-of-state principal corporation that requires its New York State agent to discriminate in employment on the basis of a criminal conviction may be held liable for the employer’s violation of § 296(15),” was too focused on “whether there was discrimination in this particular case.” Because the court interpreted the Second Circuit’s question as seeking “clarification as to who may be liable” under the NYSHRL’s “aiding and abetting” provision, it reformulated the third question to ask “whether section 296(6) extends liability to an out-of-state nonemployer who aids or abets employment discrimination against individuals with a prior criminal conviction.”

In granting summary judgment for defendants, the district court had held that a third party who was not the plaintiff’s direct employer could only be liable for “aiding and abetting” discrimination if the third party and the direct employer were “joint employers.” The Court of Appeals rejected that decision, holding that the “aiding and abetting” provision “applies to any ‘person,’” and “nothing in the statutory language or legislative history limits the reach of this provision to employers” or joint employers. Instead, the broad language of the NYSHRL’s “aiding and abetting” provision applies to any person or entity, including out-of-state defendants who are not employers of an aggrieved party, as long as “the alleged discriminatory conduct had an impact in New York.”

Impact of Court of Appeals Decision

The Court of Appeals did not address how its answers to the Second Circuit’s certified questions should apply to the underlying facts of Griffin v. Sirva. In her dissent, however, Judge Jenny Rivera indicated that, under the majority’s decision, “it is unlikely that either [Allied or Sirva] could be found to be an employer,” because “[n]either contributed to the selection and engagement of Astro employees, paid salary or wages, possessed the power of dismissal, or controlled Astro’s employees’ conduct.” Judge Rivera appeared to take the position that requiring a criminal background check, standing alone, should not be sufficient to establish “employer” status under the NYSHRL.

As we previously discussed, however, that does not end the inquiry. Under the Court of Appeals’ decision, an entity that is not a “direct employer” may face liability under the NYSHRL in one of two ways. First, depending on the facts of a particular case, a third party engaging another company’s workers on an independent contractor basis may be liable as an “employer” under New York’s four-part common law test, especially if any indicia of the third party’s control over the contract workers are present. Second, even in the absence of an employment relationship, a third party that requires an independent contractor’s employees to pass a criminal background check may be found liable under the NYSHRL’s “aiding and abetting” provision. Because the Court of Appeals held that this provision should be “construed broadly,” and applied to both non-employers and out-of-state defendants, the court’s interpretation of the “aiding and abetting” provision may sweep more third parties within the NYSHRL’s ambit going forward.

The Court of Appeals raised, but left unanswered, the question of whether a third party may be found liable for “aiding and abetting” discrimination in the absence of any finding of direct discrimination by a worker’s employer. The court previously held that “a newspaper company that had no employment relationship with the plaintiff” was liable for “aiding and abetting” discrimination by publishing its employment ads in separate categories by gender. The Griffin court found it “[n]otabl[e]” that this previous opinion imposed “aiding and abetting” liability without “consider[ing] the issue of whether, separate from the newspaper company, any employer or prospective employer was liable for primary discrimination under the Human Rights Law.” This discussion may have significance for the Griffin appeal, because Allied and Sirva now face potential “aiding and abetting” liability, even though a jury previously found that plaintiffs’ direct employer did not discriminate against them in violation of the NYSHRL. Whether a court will impose liability against a third party for “aiding and abetting” discrimination, after a fact-finder has expressly determined that the primary employer did not discriminate against plaintiffs, however, remains to be seen.

In summary, the Court of Appeals’ decision provides some good news for companies that engage independent contractors, by holding that only “employers” are subject to direct liability for employment discrimination under the NYSHRL. The court’s decision also poses some challenges, however, as it may extend liability to a third party either by finding employer status under New York’s four-part common law test, or by determining that imposition of a background check requirement constitutes “aiding and abetting” discrimination. Accordingly, companies who conduct background checks on their independent contractors should remain cognizant of both the four factors that determine employer status under New York common law, and the various statutes, including the NYSHRL, the New York City Human Rights Law, and the New Jersey Law Against Discrimination, that may impose liability for “aiding and abetting” acts of employment discrimination under such circumstances.

Ever since the National Labor Relations Board (“NLRB”) issued its August 2015 decision in Browning-Ferris Industries of California, Inc., holding two entities may be joint employers if one exercises either direct or indirect control over the terms and conditions of the other’s employees or reserves the right to do so, the concept of joint employment has generated increased interest from plaintiffs’ attorneys, and increased concern from employers. Questions raised by the New York Court of Appeals in a recent oral argument, however, indicate that employers who engage another company’s workers on an independent contractor basis would be wise to guard against another potential form of liability, for aiding and abetting acts that violate various anti-discrimination statutes, including both the New York State (“NYSHRL”) and New York City Human Rights Laws (“NYCHRL”) and the New Jersey Law Against Discrimination (“NJLAD”).

On March 28, 2017, the New York Court of Appeals heard oral arguments in Griffin v. Sirva, Inc., to answer three questions that had been certified by the U.S. Court of Appeals for the Second Circuit: (1) does the NYSHRL’s prohibition of employment discrimination based on workers’ criminal records limit liability to an aggrieved party’s “employer”; (2) if so, is the scope of the term “employer” limited to a worker’s direct employer, or does it include other entities who exercise a significant level of control over the direct employer’s discrimination policies and practices; and (3) does the portion of the NYSHRL that prohibits aiding and abetting the discriminatory acts of another apply to a non-New York entity that requires its New York agent to discriminate in employment based on a worker’s criminal history.

Griffin illustrates a concern faced by employers in a variety of industries, who subcontract certain types of work to employees of a separate business entity on an independent contractor basis. Among other tasks, companies may engage contractors to provide cleaning services, security, delivery of goods, installation of purchases or, as in Griffin, packing and moving services.  Such subcontracted services may be performed in a variety of settings, ranging from the company’s premises to its customers’ homes.  With increasing concerns regarding workplace violence, companies often choose to conduct their own criminal background checks on these contract workers, either personally or through an outside vendor, in an attempt to protect the company’s employees, customers, and property. This concern is particularly heightened when, as in Griffin, the contract workers in question will be performing services in the homes of a company’s customers.

In these types of scenarios, a question often arises regarding whether the company that engaged the contractors can be liable for violating state or city laws prohibiting discrimination based on criminal convictions, by virtue of requiring the background check, even though that company was not the workers’ direct employer. In resolving this question, courts typically rely on the concept of joint employment, analyzing the extent to which the company is involved in the hiring or firing of the contractors, or in exerting control over their working conditions. Presumably anticipating this sort of analysis, the parties in Griffin (including the State of New York, which filed an amicus curiae brief and was permitted to participate in oral argument) focused their briefing and arguments on whether a company that performs background checks on its contract workers should be deemed an employer under the NYSHRL.  Through its questions at oral argument, however, the court appeared to indicate that there may be a simpler resolution in this type of case, which does not require addressing the complex question of whether the company requiring the background checks is the workers’ employer or joint employer.

In addition to directly prohibiting discrimination based on criminal history, the NYSHRL states that it is “an unlawful discriminatory practice for any person to aid, abet, incite, compel or coerce the doing of any of the acts forbidden under [the NYSHRL], or to attempt to do so.” “Person” is defined as including “one or more individuals, partnerships, associations, corporations, legal representatives, trustees, trustees in bankruptcy, or receivers.” Based on this expansive language, several judges seemed to indicate that the NYSHRL’s “aiding and abetting” provision was sufficiently broad to encompass third parties who conduct background checks on contractors, regardless of whether such entities would otherwise be considered the contract workers’ employer or joint employer.  Assuming the “aiding and abetting” provision covers such conduct, multiple judges noted that imposing liability under that provision would be simpler than wrestling with the joint employment issue.  Further, the judges expressed concern that expanding liability under the main section of the NYSHRL to non-employers would render the “aiding and abetting” provision superfluous.

While it is premature to predict how the Court of Appeals may ultimately rule in Griffin, particularly given the recent unexpected death of one of the court’s seven members, Judge Sheila Abdus-Salaam, companies who engage workers on an independent contractor basis should be aware that potential joint employment issues may not be their only concern with regard to such workers. Regardless of whether a company exerts sufficient control over its contract workers to be deemed a joint employer, if the company operates in a jurisdiction whose anti-discrimination laws allow for “aiding and abetting” liability, that provision may serve as an alternative basis of potential liability for a company that conducts criminal background checks on contract workers engaged through a separate business entity.  Specifically, because the NYSHRL, NYCHRL, and NJLAD each include broad provisions that prohibit any person or entity from aiding, abetting, inciting, compelling, or coercing any acts that violate those laws, businesses that operate in New York State, New York City, or New Jersey should ensure that any background check requirement imposed on another entity’s workers complies with all applicable “ban-the-box” and anti-discrimination laws (e.g., NY State Correction Law Article 23-A, the NYC Fair Chance Act, and the NJ Opportunity to Compete Act), in order to avoid potential liability under the applicable “aiding and abetting” provisions in those jurisdictions.

34th Annual Workforce Management Briefing Banner

When:  Thursday, October 15, 2015    8:00 a.m. – 3:00 p.m.

Where:  New York Hilton Midtown, 1335 Avenue of the Americas, New York, NY 10019

This year, Epstein Becker Green’s Annual Workforce Management Briefing focuses on the latest developments that impact employers nationwide, featuring senior officials from the U.S. Department of Labor and the Equal Employment Opportunity Commission. We will also take a close look at the 25th anniversary of the Americans with Disabilities Act and its growing impact on the workplace.

In addition, we are excited to welcome our keynote speaker Neil Cavuto, Senior Vice President, Managing Editor, and Anchor for both FOX News Channel and FOX Business Network.

Our industry-focused breakout sessions will feature panels composed of Epstein Becker Green attorneys and senior executives from major companies, discussing issues that keep employers awake at night.  From the latest National Labor Relations Board developments to data privacy and security concerns, each workshop will offer insight on how to mitigate risk and avoid costly litigation.

View the full briefing agenda here. Contact Kiirsten Lederer or Elizabeth Gannon for more information and to register.   Seats are limited.