New Jersey Acts to Tighten Up on Worker Misclassification

The advantages of classifying workers as independent contractors are many. To mention a few: The business does not need to contribute to the state unemployment fund; there are no pension obligations; no health care requirements; and no Social Security matching for workers classified as independent contractors. However, workers that are misclassified as independent contractors miss out on those benefits that they are entitled to.

For this reason, the State of New Jersey adopted what is known as the ABC Test. The New Jersey Supreme Court upheld the test in a January 14, 2015 ruling, Hargrove v. Sleepy’s. The ABC Test presumes a worker is an employee unless it can be proven otherwise.

In order to establish the status of independent contractor, all three standards of the ABC Test must be met:

Standard A – The worker was or will continue to operate without the employer’s control or direction.

Standard B – The service by the worker must not be part of the company’s usual course of business or the work must be conducted outside the business location.

Standard C – The worker is engaged in an independent business or occupation. A good indicator used for this would be if the worker has other customers and clients.

On Monday, January 20, 2020, New Jersey Governor Phil Murphy signed six bills into law that would be used to curb abuses of misclassifying workers.

These six bills consisted of the following:

Assembly Bill 5838 – Allows the Department of Labor and Workforce Development, upon the receipt of a worker classification violation, the authority to enter a place of business for purposes of examining employment records, interviewing workers and taking depositions. If it is determined that there is a violation, the Department can issue a stop-work order which would require the business to shut down. This order would remain in effect until the Department determines that the business had come into compliance and paid any penalties assessed by the Department.

Assembly Bill 5839 – Allows the Department of Labor and Workforce Development to assess penalties for violations of state wage, benefits, and tax laws in connection with the misclassification of workers.

Assembly Bill 5840 – Makes employers and any labor contractor they use jointly responsible for worker classification, and any penalties and taxes that might be owed. A labor contractor is any person or entity that supplies, without or with a contract, directly or indirectly, an employer with workers to perform services within the employer’s usual course of business. The exceptions to this would be for labor organizations, apprenticeship programs or hiring halls operated pursuant to a collective bargaining agreement.

Assembly Bill 5843 – Requires businesses to post a notice for their workers regarding misclassification. The notice must be displayed conspicuously, in a place accessible to all workers and prescribe to the form issued by the Department of Labor and Workforce Development.

Senate Bill 4226 – Permits the Department of Labor and Workforce Development to post information about employers violating employment laws online.

Senate Bill 4228 – Provides guidance with respect to tax data sharing between the New Jersey State Treasury and the Department of Labor and Workforce Development.

The Governor and the NJ Legislature still have some unfinished business. A Senate Bill, which would have required the reclassification of thousands of independent contractors, was pulled due to pressure from affected businesses. The measure will be reintroduced and debated in the future.