The independent contractor test was thoroughly analyzed by the Supreme Court in Re/Max v. Wausau Ins. Cos., 162 N.J. 282 (2000). In that case Re/Max argued that all of its real estate agents were independent contractors. They signed agreements to that effect. While most of the real estate agents worked full time, they did not have to spend any particular amount of time in the office. They chose their own hours of work. They furnished their own vehicles and controlled their own advertising (although the Re/Max logo had to be included in advertising). Re/Max advertised that agents are “in business for yourself but not by yourself.” Re/Max allowed its agents to retain the entire sales commission earned from any sale, but the agents had to pay to the broker certain fees and expenses, including a security deposit, an initiation fee, and a monthly management fee for use of the office.

The Supreme Court held that under both the control test and the relative nature of the work test, the real estate agents were employees. On the control test, the court noted that agents had to comply with many guidelines and quality controls. Further, real estate agents are an integral part of the business activity of the company. Sales agents are economically dependent upon Re/Max because the broker provides the listings, the office, the equipment, and the support staff. Agents also work exclusively for Re/Max. Thus, the Supreme Court used the test of functional integration or economic dependence in order to invalidate the argument that the agents were independent contractors. “We hold that the innovative structure created by the Re/Max agreement is simply another sophisticated attempt to thwart the employer-employee relationship. . . .” Id. at 288.

To establish that an employee is an independent contractor the employer must consider the two tests used in New Jersey. The case of Kertesz v. Korsh, 296 N.J. Super. 146 (App. Div. 1996) provides an illustration. In this case the petitioner, Michael Kertesz, was a skilled contractor who did sheet rocking for 30 years. He had his own business for which he had insurance in his name, not a corporate name. As such he himself was not covered for injuries. Sometimes he would hire himself out to others when work was slow. He did this about three or four times a month for respondent Korsh, a home builder.

Petitioner was told to bring his tools and his truck to the job at which he was injured. He considered a coworker, Robert Pastor, who worked for respondent, to be his foreman. Mr. Pastor picked up the petitioner on the day of the injury. Respondent provided the sheetrock, nails and supplies, as well as the scaffolding. There were five people installing sheetrock at the job site. Petitioner fell while working and was injured. The workers’ compensation judge found that the petitioner was not an employee, but the Appellate Division reversed for the petitioner.

The first point addressed was the issue of casual employment. The court ruled that petitioner was not a casual employee because his hiring was not accidental or by chance. He was hired three or four times each month.

Next the court reviewed the two-part test for independent contractor status:

a. The Control Test:  This test refers to the “right to direct the manner in which the business or work shall be done, as well as the results to be accomplished.” Brower v. Rossmy, 63 N.J. Super. 395, 404-405 (App. Div. 1960), certif. denied, 34 N.J. 65 (1961). Although this petitioner clearly did not need instruction, the court remarked that respondent, through Mr. Pastor, had the right to control the petitioner’s work.

The right of control test used to be the more prevalent test in New Jersey but over the past few decades it has fallen out of favor and is less used by courts.

b. The Relative Nature of Work Test: The court noted that New Jersey courts place greater reliance on this test than the control test. It is not necessary for the claimant to satisfy both tests to win. All the claimant has to meet is one of the two tests to prove employment. “The test…(is) essentially an economic and functional one, and the determinative criteria not the inconclusive details of the arrangement between the parties, but rather the extent of the economic dependence of the worker upon the business he serves and the relationship of the nature of his work to the operation of that business.” Marcus v. Eastern Agricultural Ass’n, Inc., 58 N.J. Super. 584, 603 (App. Div. 1959), rev’d, 32 N.J. 460 (1960).

Applying this test the Appellate Division reasoned that respondent was involved in the sheet rocking business because it contracted to do the sheet rocking; respondent supplied most of the job needs; respondent depended on petitioner’s work and hired him three to four times per month. Therefore, there was an economic dependence between the parties.

This test bears further analysis. Practitioners and adjusters should ask themselves two basic questions in beginning the analysis of whether there is a valid independent contractor defense:

1. Was the work of the petitioner an integral part of the regular business of respondent?
2. Was the worker economically dependent on the employer?

Beyond these questions, the following checklist should be considered in making the ultimate determination whether the worker is an independent contractor or an employee:

• Review type of payments, W-2, 1099s or cash
• Review payroll records for the worker
• Read any contracts between the companies involved, including indemnification clauses, which may render the independent contractor defense moot
• Investigate any pending IRS issues pertaining to the worker’s status
• If in the construction field, determine who supplied the tools and equipment
• Check the method of transportation of the worker to the job site
• Investigate whether there are other sources of income or whether the putative employer is the only source of income
• Determine the percentage of income from the alleged employer in question to the worker’s overall income
• Review any written agreements between the worker and the entity
• Find out how insurance coverage on vehicles was handled

Once the foregoing questions have been answered, it is usually rather easy to determine in advance of trial how a judge will view the independent contractor defense. No one factor is paramount but all must be considered together. Written agreements alone which state that the worker is an independent contractor do not control the outcome. Rather, courts look at the functional relationship between the parties. Another way of stating this is that New Jersey courts focus on substance over form in resolving independent contractor issues.

The mere fact that the worker has his or her own private business does not negate employee status when performing work for another entity. In Kertesz, supra, the petitioner had a business of his own but was nevertheless found to be an employee of the respondent.

In a case handled successfully on appeal by Anne Hammill, Esq. of Capehart Scatchard,  the Appellate Division vacated a 60% award to petitioner in Cardiello v. Community Medical Center, A-3172-06T1 (App. Div. March 19, 2008).

Petitioner, Valerie Cardiello, alleged that she injured her back on December 30, 2001 while working for respondent.  She later amended to include her neck and shoulder.  Respondent denied the neck and shoulder injuries.  Later petitioner alleged that she was totally and permanently disabled, applying for Second Injury Fund benefits.

Trial took place on November 6, 2006.  The following sequence of testimony is important:

Q.  You began working in 1977 as an LPN?

A.  Correct.

Q. And you worked various places as an LPN until your last day of employment, January 22^nd, 2002?

A. That’s correct.

Q. Have you worked anywhere since then?

A. No.

Q. Any family business or off the books jobs, anything of that nature?

A. No.

Q. And your last place of employment was the Community Medical Center?

A. Correct.

On January 3, 2007 respondent offered a settlement of 60% of partial total with a credit for twelve and one-half percent for a total of $151,179.  On the day the settlement was supposed to be put through, respondent’s counsel advised the judge of compensation that petitioner may have engaged in fraudulent conduct when she testified and in other representations.  The judge of compensation denied respondent’s request for one cycle, (three weeks) as well as the request of the Attorney for the Second Injury Fund.

The judge then recalled petitioner for further testimony at the January 3, 2007 hearing and petitioner admitted that she was employed at that time as a supervisor at a nursing home where she said she just did paperwork.  The court then prevented any further questioning beyond petitioner’s current employment.  The court also prevented respondent from withdrawing its settlement offer and entered an order for the award of $151,179 over respondent counsel’s objection. The court reasoned that since the award was for partial permanent disability, (not total), it did not matter that petitioner could work.  According to the judge, working status was an issue only insofar as petitioner was claiming she was totally and permanently disabled.

Respondent filed a motion to vacate the order in part based on the provisions of the New Jersey Fraud Statute.  The judge of compensation refused to consider new evidence on fraud, “I think we have got a settlement.  The parties have agreed that she’s permanently and partially disabled.  Now somebody thinks, well, gee, we got more evidence now that she might have been working somewhere.  Well, the total disability issue is over.  It sounds to me like somebody just doesn’t like this lady and they’re trying to kill the settlement.”  The judge, therefore, denied respondent’s request to vacate the order, leading to this appeal.

The Appellate Division noted that the extent of working ability is critical to any determination of overall disability.  It stated, “Consequently, the judge abused his discretion in limiting the questioning of petitioner’s working status to her then current working status.”  In addition, the court observed that the parties clearly had not reached a settlement given the issues raised by respondent’s counsel.

The Appellate Division went on to note that under the New Jersey Fraud Act, the judge of compensation has the ability to order an immediate termination or denial of benefits whenever a false or misleading statement is made.  “Thus, the Act does not restrict its application to the time period before a settlement agreement is made.”  The court also commented that it was significant that respondent offered within three weeks of the award proof that petitioner had maintained she was not able to work even when the Second Injury Fund claim was pending.  In fact, petitioner had been working at that time.   Petitioner received an employee of the month award on June 18, 2006 five months before she testified in court that she had not been employed since January 22, 2002.

This case was remanded to the Division of Workers’ Compensation for further proceedings and was eventually dismissed for no compensation with petitioner having to repay a $7,000 TDB lien.

New Jersey has its own fraud provision built into the statute under N.J.S.A. 34:15-57.4.  There are two helpful unreported cases on fraud.

In Singh v. Cream-O-Land Dairy, A-2468-06T5, (App. Div. March 27, 2008), the Appellate Division affirmed the decision of the Honorable Michael P. Mullen, Judge of Compensation, in denying compensation to a claimant who misrepresented material facts and in ordering the petitioner to repay benefits.

The case is particularly interesting because the petitioner, a truck driver, did indeed suffer a work-related injury on May 2, 2002, which caused two herniated discs and subsequent two-level disc excision surgery.  The fraudulent representations took place after the injury and after the surgery and pertained mostly to petitioner’s ability to work.

On January 3, 2003, petitioner applied for a job as a truck driver with Banibal Trucking Co., a company owned by his cousin.  Petitioner worked there until June 2004 as a tractor-trailer driver.  His 2003 tax returns showed expenses for 195 nights of over-the-road lodging mainly in this job.

In August 2004, petitioner underwent a physical examination for Wills Trucking, Inc. during which he denied suffering any disabilities or injuries in the past five years.  Mr. Singh’s 2004 tax return disclosed 276 nights of over-the-road lodging and a gross income of $86,776.

Respondent paid 46 and three sevenths weeks of temporary disability benefits and a bona fide offer of 12.5%.  In spite of his employment, petitioner told his treating and workers’ compensation examining doctors that he could not work as a truck driver as a result of his severe pain.  He testified in court on September 14, 2004 that he had not been employed since May 2, 2002 by anyone other than his cousin.  He also minimized the work he did for his cousin and he denied that he could work on a full-time basis due to his pain.

At the next date of testimony, respondent confronted petitioner with records of Banibal Trucking and Wills Trucking.  Petitioner said he left Banibal in June 2004 because he could not drive a truck long distances.  However, respondent offered evidence of petitioner’s per diem lodging expenses on his 2003 and 2004 tax returns.

Petitioner’s expert, Dr. Moskowitz, found 75% permanent partial disability.  Petitioner told Dr. Moskowitz that he had only been able to return to work part-time.  He led Dr. Rubin to believe that he was depressed because he was not able to get back into the work force.   He further told respondent’s expert on May 12, 2004 that he had remained out of work since the 2002 accident.

Judge Mullen wrote a 51-page decision finding that petitioner had committed fraud in violation of N.J.S.A. 34:15-57.4  He highlighted the misrepresentations in court and to the examining doctors.  He ordered the following:

1)     Petitioner was to reimburse respondent $1,350 for seven days of trial court reporting bills;

2) Petitioner was to return the voluntary tender of 12.5% or $12,600

3) Petitioner was to return $7,278.42 in temporary disability benefits with interest;

4) Petitioner’s claim petition was dismissed for no compensation at all.

The Appellate Division affirmed the decision of Judge Mullen, noting that there was ample evidence of fraud.  The court also commented on an issue not previously addressed in the New Jersey Division of Workers’ Compensation, namely the level of proof required in fraud cases.  The court said that for Part (a) of the Fraud Statute, which involves proof of a fourth degree crime, the standard of proof is beyond a reasonable doubt.  However, for the remaining parts of the Fraud Statute, which involve civil remedies such as those ordered in this case, the standard of proof is simply a preponderance of the evidence.

This case represents perhaps the first Appellate Division decision in which a petitioner was ordered to reimburse indemnity benefits in an otherwise compensable claim (the herniated disc was work-related and led to work-related surgery) and in which the entire claim for permanency was dismissed due to petitioner’s dishonesty in trying to enhance the value of his claim by making material misrepresentations.  The case clearly shows that judges of compensation as well as the Appellate Division are increasingly sensitive to the terms of the Fraud Statute and are not loathe to dismiss an otherwise compensable claim of significant magnitude where petitioner has lied about the impact on his working ability and earnings capacity.

Casual employees are excluded from receiving benefits under N.J.S.A. 34:15-36. The present definition of casual employment embraces two concepts, depending on whether the services are given in relation to a business, or whether they are unconnected to a business. If the services are rendered in relation to a business, they are casual if they are rendered only by chance or by pure accident. If they are not rendered in relation to a business, they are casual if the employment is not regular, periodic or recurring.

There is often a fine line between this defense and the independent contractor defense, which will be discussed below. The important thing to remember is that if the worker is a casual employee, the case must be dismissed. The court has no jurisdiction over the claim because the services were not performed by an employee, and only employees are eligible for compensation benefits. It does not matter that the defense of casual employment may not be raised right away. The carrier or third-party administrator may have accepted the claim and may have paid workers’ compensation benefits, but if a judge finds that the worker is a casual employee the case must be dismissed. This is what is meant by the legal adage that jurisdiction is always in issue in a compensation case. That means that the defense can always raise the issue of lack of jurisdiction at any time in the case.

The best case on casual employment is Martin v. Pollard, 271 N.J. Super. 551 (App. Div.), certif. denied, 137 N.J. 307 (1994) because this is the case that discusses the two concepts related to the term. In that case Mr. Pollard owned two houses on the same street. One was rented to Donna Bartha, who was the live-in companion of Mr. Martin. The other house was a summer cottage. In June 1991 Pollard hired Martin to paint the summer cottage. There was no formal contract, but there was a verbal agreement that Martin would keep track of his hours, and Pollard would pay him $10 per hour when the job was finished. Pollard provided all the material except for the ladder.

Sometime later Pollard hired Martin to apply a water sealant to the exterior of the house Bartha was renting, again promising to pay $10 per hour. The agreement was informal once again, with no set hours for work. The only difference was that Pollard for this job only supplied the water sealant, while Martin supplied the brushes, ladder and other materials.

Martin had a full-time job working for Bartha in her residential cleaning service, so he worked on the houses whenever he could find the time. One day while doing the water sealant job he lost his footing and fell from the roof, fracturing his femur. He had expended about 14 hours on the job over a period of one week at the time of the accident.
The workers’ compensation judge found that Martin was not an independent contractor and then went on to find that the services of Martin were rendered in connection with a business. The court believed that Pollard was in the business of renting properties. The court did not think the work was by chance or accidental: thus employment was found. However, the Appellate Division disagreed with this view and reversed. The opinion of the court is very important in a number of respects:

a. First, the court noted that there is a thin line between casual employment and independent contractor status, and that it really did not make a great deal of sense to try to decide whether Martin was a casual employee or an independent contractor. If he is either, he loses. For adjusters, therefore, it is helpful to raise both issues in situations where employment is at issue, recognizing that there is often not much difference between the two defenses and if either defense is upheld by the judge the case will be dismissed.

b. Second, the appellate court viewed differently from the compensation court the question of whether Pollard was in the business of renting properties, saying that even if that were true, it would be very difficult for Martin to argue that having a house sealed or painted is any more integral to the rental business than it would be to call a plumber to fix a broken pipe. In other words, just because one is in the business of renting property does not mean that anyone one hires to do a one-time job automatically becomes an employee.

c. The court in a case like this has to look at the whole picture. The appellate court concluded that Martin really only did work for Pollard on an irregular basis. It observed that Martin chose the time he would work and the manner in which it would be done. It concluded that Martin was not economically dependent on Pollard.

d. Payment by the hour is not inconsistent with the status of an independent contractor. The court commented on this point, and it is useful to remember this comment when counsel for the petitioner raises the hourly method of payment as alleged evidence of employment status.

The casual employment defense is particularly important in these days where many people have part-time jobs and do occasional secondary work for others. When injured they may bring a claim against the homeowners’ coverage of the alleged employer. From this case it is clear that homeowners do not become employers every time they hire someone to do a service in the home. These workers are either going to be considered casual or independent in most cases.