As discussed in a prior alert, New Jersey employers are subject to a three-factor test, known as the ABC test, that generally classifies most workers as employees, rather than as independent contractors. On May 13, 2024, the Supreme Court of New Jersey issued an opinion clarifying that the ABC test doesn’t apply to brokers in the real estate business, and holding that New Jersey law respects contracts that treat real estate brokers as independent contractors. The opinion affirms the century-old tradition of categorizing brokers and sellers of real estate in this way.

The opinion, issued in Kennedy v. Weichert, addressed the employment status of James Kennedy II, who had worked for a Weichert Co. office between 2012 and 2018. Kennedy objected to Wiechert’s charging him certain fees. If Kennedy had been an employee, those fees would be impermissible. In determining whether Kennedy was, in fact, an “employee” of Weichert’s, the Court examined the employment agreement between the two parties. The agreement treated Kennedy like an independent contractor.

The “agreement is dispositive,” the Court ruled. Relying on 2018 and 2022 acts of the state legislature that amended the Wage Payment Law, the Court held that, when addressing employment matters in the real estate sales business, the Court will enforce the terms of a real estate broker’s employment contract defining the broker as an independent contractor, even if the arrangement at issue predates the Wage Payment Law amendments.

Bottom line: The ABC test—which presumes that a worker qualifies as an “employee”—applies to employers outside the real estate sales business. The ABC test provides that, to avoid the classification of a worker as an “employee,” employers generally must prove that: (a) the individual is free from control or direction over performance of the work, (b) the work performed is outside the usual course of the employer’s business or outside the employer’s physical locations, and (c) the individual is customarily engaged in an independently established trade or business.