Employee v. independent contractor: Appellate Division revisits definition of "employee" under New Jersey Workers' Compensation Act.

The petitioner had worked as a licensed hairdresser at the respondent's nursing home since 1992, where, once per week, she provided hairstyling and other personal grooming services to the residents of the nursing home. In addition to a dedicated space for the beauty salon, the respondent provided the salon's chairs, hairdryers, a sink, shampoos and a cabinet for the petitioner's supplies. The petitioner provided her own scissors, hair dye and some other items. The residents scheduled their appointments with the petitioner directly through the nursing home, which set the fee schedule for the petitioner's services. At the end of the day, the petitioner would prepare a billing statement from which the respondent would deduct 15% of the receipts and pay the petitioner the balance. The only other regular employment the petitioner maintained was washing hair once a week at a friend's salon. In December 2003, the petitioner sustained bodily injury when she fell from a chair while hanging Christmas decorations in the salon area. The decorations were provided by the respondent's activities department to make the work environment more festive for the holidays.

The petitioner subsequently filed a claim for workers' compensation benefits, which the respondent contested on the grounds that the petitioner was an independent contractor and not an employee under the New Jersey Workers' Compensation Act. N.J.S.A. 34:15-36 defines "employee" as:

[A]ll natural persons, including officers of corporations, who perform service for an employer for financial consideration, exclusive of . . . casual employments, which shall be defined, if in connection with the employer's business, as employment the occasion of which arises by chance or is purely accidental; or if not in connection with any business of the employer, as employment not regular, periodic or recurring[.]

The judge of compensation ruled in favor of the petitioner, finding that she was the respondent's employee at the time of the accident and entitled to workers' compensation benefits. The respondent appealed.

In affirming the judge of compensation's ruling, the Appellate Division relied on Pollack v. Pino's Formal Wear & Tailoring, 253 N.J. Super. 397 (App. Div. 1992), in which the Appellate Division developed two tests to determine if an individual is an "employee" within the meaning of the Act or an independent contractor—i.e., the "control test" and the "relative nature of the work test." Both tests are designed to draw a distinction between those occupations which are properly characterized as separate enterprises and those which are in fact an integral part of the employer's regular business.

The control test focuses on the degree of control exercised by the employer over the means of completing the work; the source of the worker's compensation; the source of the worker's equipment and resources; and the employer's termination rights. Under the relative nature of the work test, a petitioner must show a "substantial economic dependence" on the employer. This is demonstrated when there is a "functional integration" of the parties respective operations.

Here, the petitioner was not free to select her customers but, rather, depended entirely on the respondent to supply customers to her. The petitioner relied on the respondent for making the residents' appointments and had little control over the timing of her work. Although the petitioner provided some supplies, the respondent provided all of the essential hardware to run the salon. The petitioner's compensation was also based on a percentage of the fees paid by the customers. Finally, the respondent maintained the power to terminate the petitioner at will. Due to the interdependence of the petitioner's work with the operation of the respondent's business, the Appellate Division found an employer-employee relationship did exist. "In this context," the Appellate Division concluded, "decorating the salon for the holidays can be viewed as performing an incidental, though not required service for the employer."

Case Law Alert - 1st Qtr 2012