Independent Contractor Afforded Protection Under New Jersey's Whistleblower Act

In a groundbreaking expansion of the broad protections afforded workers under the New Jersey Conscientious Employee Protection Act ("CEPA"), the New Jersey Supreme Court recently held a professional individual designated an independent contractor in a private agreement was entitled to whistleblower protection under the statute. D'Annunzio v. Prudential Ins. Co. of Am., 2007 N.J. LEXIS 910 (N.J. Sup. Ct., July 25, 2007).

New Jersey courts have routinely grappled with the scope of worker classification under remedial statutes intended to protect employees. It is well-settled that CEPA is intended to protect individuals who lodge complaints against their employers for conduct that is illegal, fraudulent or otherwise contrary to public welfare. In D'Annunzio, the Court addressed the scope of CEPA's definition of an "employee," defined as "any individual who performs services for and under the control and direction of an employer for wages or other remuneration." N.J.S.A. 34:19-2(b). The Court observed that CEPA protection "is not limited to a narrow band of traditional employees," but rather, the proper focus is "on the reality of [the] plaintiff's relationship with the party against whom the CEPA claim is advanced."

In D'Annunzio, the plaintiff, a chiropractor, was hired by the defendant insurance company as a medical director in its Personal Injury Protection Department. The parties entered into an agreement whereby the plaintiff would review medical treatment plans submitted by physicians to determine medical necessity. The agreement designated the plaintiff as an independent contractor and expressly stated that the parties did not have an employer-employee relationship. The plaintiff was required to work at the defendant's offices, where he was provided a work cubicle identified by his nameplate, from 9:00 a.m. to noon, Monday through Friday. The plaintiff was also required to maintain an active medical practice, which could constitute no less than fifty percent of his overall medical services.

Shortly after entering into the agreement, the plaintiff complained to his supervisors that he believed the defendant was committing insurance violations, such as failing to pay MRI bills, hiring non-medical professionals to conduct independent medical evaluations, and using nurse case managers to approve medical treatments. Soon thereafter, the defendant terminated the agreement with the plaintiff, purportedly for poor performance. The plaintiff instituted a legal action asserting, among other things, that the defendant retaliated against him, in violation of CEPA, for making complaints regarding the defendant's lack of regulatory compliance. The trial court dismissed the CEPA claim, ruling that the plaintiff was an independent contractor, not an employee of the defendant as defined by CEPA. Reversing the trial court, the Appellate Division held that where professional services are involved, the standard for determining CEPA coverage focuses more on the employer's exercise of control over the individual and less on financial arrangements as with traditional employees.

In a 5-1 decision, the New Jersey Supreme Court affirmed that the plaintiff was among the class of individuals protected by CEPA. Where an individual provides professional or specialized services, courts must now look beyond the traditional independent contractor label to determine whether there is an employment relationship for purposes of CEPA. Courts must focus on the following three factors: "(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." As to functional integration, the Court posed the following questions: (i) "Has the worker become one of the 'cogs' in the employer's enterprise?"; (ii) "Is the work continuous and directly required for the employer's business to be carried out, as opposed to intermittent and peripheral?"; (iii) "Is the professional routinely or regularly at the disposal of the employer to perform a portion of the employer's work, as opposed to being available to the public for professional services on his or her own terms?"; and (iv) "Do the 'professional' services include a duty to perform routine or administrative activities?" Affirmative answers to these questions weigh in favor of providing whistleblower protection under CEPA.

Applying the above standards, the Court determined an "employment relationship" was formed with the plaintiff for purposes of CEPA. The Court found D'Annunzio was "a necessary part in [the defendant's] day-to-day operations" based on "the demand for his physical presence for half of the entire business workweek, spread over every business day, ensuring not only his professional discretionary judgment on individual cases, but also his ready availability to other professionals performing tasks for [the defendant] for consultation and educational purposes." The Court relied on evidence that the plaintiff's "day-to-day activities were controlled in minute detail," such as the defendant's specific instructions for reviewing claims and preparing written reviews. Next, the Court noted significant time demands were imposed on the plaintiff, which limited his availability for private practice. Lastly, the Court observed the plaintiff's duties included numerous administrative tasks that were designed solely to further the defendant's business plan.

D'Annunzio demonstrates that private agreements designating the work status of individuals are "informative but not dispositive" in analyzing a working relationship under CEPA. Employers cannot simply insulate themselves from the protections of remedial legislation through private agreements. Because CEPA and other remedial legislation are intended to further social aims, such as deterring workplace retaliation, it is anticipated that courts will continue to scrutinize alleged independent contractor relationships involving the rendition of professional services. Employers should be mindful of the ramifications of working relationships with professionals and other purported "independent contractors." Traditional independent contractor and other worker arrangements, therefore, must be examined carefully to minimize employer exposure to this new form of workplace liability.

Jackson Lewis attorneys are available to counsel employers and provide individualized review of arrangements utilizing professional or specialized services.