Back on the Market? New Jersey Appellate Division Strikes Down Use of ABC Test for Commissioned Real Estate Agents

March 6, 2023

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Recently, it seems like New Jersey employers cannot catch a break from the increasingly burdensome requirements of New Jersey’s labor laws and Department of Labor regulations and enforcement mechanisms. Then, on January 30, the New Jersey Appellate Division issued an important opinion in Kennedy v. Weichert Co.,[1] easing some of that burden on the real estate industry, finding the ABC test inapplicable in determining whether commissioned real estate agents are employees or independent contractors.

                Leading up to the Kennedy decision, the ABC test had been the prevailing test for independent contractor status under New Jersey’s Wage and Hour and Wage Payment Laws and New Jersey’s Unemployment Compensation Law. The test has long been regarded as the most “employee friendly,” presuming that workers are employees unless three strict criteria are met. First, the individual must have been and must continue to be free from control or direction over the performance of the work being performed. Second, the individual must work either outside the usual course of the business for which the service is being performed OR outside of all of the places of business of the company for which the service is being performed. Finally, the individual must customarily be engaged in an independently established trade, occupation, profession, or business. If any of the three criteria fail, an individual is considered an employee, and employers are required to meet minimum wage, overtime, and unemployment compensation benefit obligations (among potential others).

                In Kennedy, a fully commissioned real estate salesperson sued his former employer under the Wage Payment Law. The defendant moved to dismiss the complaint arguing that the plaintiff was an independent contractor and, therefore, was not covered by the Wage Payment Law. The trial court applied the ABC test and denied the motion.

                On appeal, the Appellate Division reversed, concluding the ABC test should not apply to commissioned real estate salespersons. In reaching its decision, the panel focused on the interplay between the ABC test and the Real Estate Brokers and Salesmen Act (“Broker Act”). The Broker Act sets forth various requirements regulating the relationship between brokers and salespersons. It also expressly provides that the relationship between a broker and salesperson “may be that of an employment relationship or the provision of services by an independent contractor.” 

                The panel found that the ABC test is inconsistent with the Broker Act. Recognizing the nearly impossible requirements of the ABC test and the significant regulations governing commissioned salespersons, it reasoned that it is unlikely that a commissioned salesperson could ever be considered an independent contractor under the ABC test. Because that outcome is directly at odds with the statutory provisions confirming that real estate salespersons could be either employees or independent contractors, the panel concluded the ABC test should not apply. In doing so, the Appellate Division cast a blow to the Department of Labor’s attempts to broaden the use of the ABC test to the real estate industry (the Department also participated as amicus curiae in this matter). 

While the Appellate Division’s rejection of the ABC test is undoubtedly significant, it left unanswered the critical question the case posed: what test should apply? Instead, the Appellate Division noted that different statutory schemes require different tests to determine independent contractor status, but it declined to adopt one for real estate agents because of the limited record available on appeal, leaving the trial court to make that determination in the first instance.  

While we wait for that critical question to be answered, employers in the real estate industry should be mindful of the current uncertainty in this area and consider potential steps in consultation with counsel to minimize the risk of costly litigation or assessments from the Department of Labor in connection with their classification decisions. And, of course, employers in other highly regulated industries should consult experienced counsel to determine what impact, if any, this case, and any subsequent decisions that are issued as it continues to be litigated, will have on their classification decisions.   


[1] No. A-0518-19, 2023 N.J. Super. Unpub. LEXIS 143 (App. Div. Jan. 30, 2023)

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