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October 24, 2019Download PDF

Updates to Worker Classification Enforcement Law in New Jersey

The New Jersey Department of Labor has recently partnered with the United States Department of Labor to remedy the improper classification of employees as independent contractors. As set forth below, misclassification of employees has become a prominent issue to Governor Phil Murphy and his administration.

First, in determining whether a contractor is truly independent or should be a company employee, New Jersey uses the “ABC” test. To comply, an employer must establish that each independent contractor: (A) is free from direction and control; (B) provides a service outside the employer’s usual course of business or places of business; and (C) is engaged in an independently established trade, occupation, or business.

In some instances, applying the “ABC” test is straightforward. For example, a transportation company that deems its truck drivers to be independent contractors is virtually certain to be in violation of the “ABC” test. If the truck driver is controlled by the employer; provides pertinent services to the employer within the business model; and works to further the employer’s business, that driver is not an independent contractor.

Alternatively, in many other scenarios, the “ABC” test is not so easily utilized. For example, a group of businesses in a shared office space could hire a joint office clerk as an independent contractor, and the clerk would not be eligible for various employment benefits and protections. This classification could benefit the employer, to the detriment of the worker. However, if the clerk is controlled by a business; services a business; and is not otherwise engaged independently, he or she should be granted employee status. Employers and employees alike often face confusion regarding whether part-time, seasonal, or temporary workers should be classified as employees or independent contractors. Thus, classification is important and should be analyzed by employers and workers prior to the commencement of any employment.

Consequently, the New Jersey Department of Labor has become heavily involved in recent months to address potential misclassification. While some workers may desire independent contractor status for personal reasons and/or to retain independence, the State of New Jersey is nevertheless concerned that such workers are being denied employment protections such as overtime, workers’ compensation benefits, unemployment, insurance, and other associated amenities. Additionally, employers of independent contractors do not pay into the tax system. Thus, the State of New Jersey is concerned that, in some situations, employers may be intentionally misclassifying their workers to avoid the above expenses and liabilities.

Among other actions, Governor Murphy has established a Task Force on Employee Misclassification to inspect the extent of misclassification by New Jersey companies and to find remedies to cure such activities. Moreover, Governor Murphy signed Bill A-108/S-2557 into law. This new law grants the New Jersey Department of Labor authority to levy significant civil penalties against employers who have misclassified workers. The Murphy Administration has cautioned the public to undertake a careful analysis of the “ABC” test and to determine whether workers are being denied benefits unlawfully, prior to potential Department of Labor intervention.

Therefore, it is highly advisable that employers and workers consult with counsel to ensure compliance with the “ABC” test. Hiring independent contractors can be advantageous in some situations; however, the “ABC” test must first be meaningfully applied.