In recent months, New Jersey’s Department of Labor has ramped up its efforts to crack down on employers misclassifying workers as independent contractors rather than employees. While employees in certain situations request being engaged as an independent contractor for a variety of personal or unique circumstances, the State of New Jersey is concerned that such workers are being unlawfully denied overtime, workers’ compensation benefits, unemployment benefits and a host of other benefits to which employees are entitled under the law. Employers and contractors also do not pay into the tax system, depriving the State of millions in revenue. The State is concerned that employers are intentionally misclassifying their laborers to avoid the noted costs and expenses.
To that end, New Jersey Governor Phil Murphy has taken a robust approach to investigating the potential misclassification of workers by employers. Among other measures, Governor Murphy established a Task Force on Employee Misclassification in May 2018 to inspect the extent of misclassification by New Jersey companies and to find remedies to cure such activities. This summer, the Governor went a step further by signing bill A-108/S-2557 into law. The new law grants the Department of Labor authority to assess civil penalties of $5,000 per day against employers found to have misclassified workers as independent contractors or, even more aggressively, shut down an employer’s job site via stop-work orders. As the Murphy administration is clearly focused on rectifying employee misclassification, New Jersey employers utilizing the services of independent contractors are cautioned to undertake a meaningful analysis of their employment practices in order to hopefully avoid coming into the crosshairs of the State’s investigatory efforts.
As a reminder to employers, when determining whether workers are truly independent contractors, New Jersey adheres to the “ABC Test”. This test requires an employer to establish all of the following criteria in order to demonstrate that a worker is an independent contractor instead of an employee:
A. The worker is free from control or direction over the performance of his/her services;
B. The services rendered are either beyond the usual course of the company’s business or they are performed outside of the company’s place of business; and
C. The individual is typically engaged in an independently-established business, profession, occupation or trade.
Worker classification is a highly fact-specific, nuanced issue. New Jersey employers are encouraged to consult with their legal counsel to help ensure that they remain compliant with the current state of the law when hiring employees and/or independent contractors.