On July 25, 2007, the New Jersey Supreme Court affirmed, but modified, an earlier Appellate Division decision holding that the definition of "employee" in the Conscientious Employee Protection Act (CEPA) hinges on an employer's "control and direction" of the worker. Further, the Supreme Court found that this definition might allow a worker classified as an independent contractor under common law to qualify as an "employee" for CEPA purposes. D'Annunzio v. Prudential Insurance Company of America. This definition is significantly broader than the definition of a protected "employee" under the New Jersey Law Against Discrimination (LAD). As set forth below, the effects of this decision are significant, and New Jersey employers should be wary of terminating any independent contractor who makes any complaints regarding an employer's conduct. In such a situation, an employer must first evaluate to what extent the employer has "control and direction" of that worker in order to assess potential whistleblower liability.

In D'Annunzio, the plaintiff, a licensed chiropractor, contracted with defendant Prudential Property and Casualty Insurance Company (PRUPAC) to work in PRUPAC's Personal Injury Department as a chiropractic medical director. As a medical director, the plaintiff was required to determine the need for chiropractic care, testing, and independent medical evaluation of PRUPAC insureds; to identify fraudulent practices and inappropriate referrals; and to assist PRUPAC's Special Investigation Unit. After six months, the plaintiff' s contract was terminated. The plaintiff claimed that PRUPAC and its representatives terminated him in violation of CEPA in retaliation for his complaints that PRUPAC took part in unethical and illegal practices.

The trial court dismissed the plaintiff's CEPA claim on summary judgment on the basis that plaintiff was not eligible to commence a CEPA action, because he was an independent contractor, not an employee. The Supreme Court analyzed the scope of the term "employee" under CEPA. The court found that the legislature clearly intended for CEPA to afford protections to a broader scope of "employees" than those protected under the LAD, stating that "[w]hen enacted, CEPA was 'the most far reaching whistleblower statute' in the nation'" and noting that construing its protections broadly has been the Court's "single guiding principle. . .since its enactment." The Supreme Court concluded that the definition of "employee" found in CEPA "includes more than the narrow band of traditional employees." The Supreme Court explained that CEPA's primary purpose is to encourage workers to voice concerns about the unlawful activities of employees and coworkers. Therefore, to satisfy that purpose, the court found that the following considerations must be considered: 1) employer control; 2) the worker's economic dependence on the work relationship; and 3) the degree to which there has been a functional integration of the employer's business with that of the person doing the work at issue. Additionally, the following 12 factors should be utilized to determine whether a worker can properly assert a CEPA claim: 1) the employer's right to control the means and manner of the worker's performance; 2) the kind of occupation— supervised or unsupervised; 3) skill; 4) who furnishes the equipment and workplace; 5) the length of time in which the individual has worked; 6) the method of payment; 7) the manner of termination of the work relationship; 8) whether there is annual leave; 9) whether the work is an integral part of the business of the employer; 10) whether the worker accrues retirement benefits; 11) whether the employer pays social security taxes; and 12) the intention of the parties. The majority affirmed the Appellate Division order remanding to the trial court the issue of whether the plaintiff in D'Annunziowas himself a worker who fit CEPA's definition of "employee."

In the wake of the D'Annunzio decision, employers should be wary of terminating independent contractors. Further, when employers do terminate workers they must take steps to ensure that they are aware to what extent they maintain "control and direction" of those independent contractors. If it is determined that they do have " control and direction" over a worker they wish to terminate, an employer should inquire as to whether this employee has voiced any concerns protected by CEPA. If that worker has, the employer should seek counsel before terminating such a worker. It is important to note that the D'Annunziocourt did not determine whether workers such as independent contractors will always be considered "employees" for CEPA purposes. Instead, the court set forth the aforementioned factors that employers should review when assessing their "control and direction" of their workers.

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Please feel free to contact James P. Flynn in the firm's Newark office at (973) 639-8285 if you have any questions or comments. Mr. Flynn's e-mail address is jflynn@ebglaw.com

This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under the applicable state or local laws that may impose additional obligations on your company.


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