New Jersey Again Significantly Increases the Risks and Penalties Relating to Both Misclassifying Workers ​​​as Independent Contractors and Other Employment Compliance Failures



The New Laws

For the second time in two years, New Jersey has enacted several laws that have substantially increased the risks and financial penalties for companies that misclassify workers as independent contractors or violate numerous state wage, benefit, and tax laws. Among other things, one of the laws enacted earlier this month:

  • Permits the New Jersey Department of Labor and Workforce Development (NJDLWD) to issue to an employer an order to stop work at all workplaces in New Jersey if the NJDLWD determines that the employer has misclassified any workers, or has violated any of numerous other New Jersey wage, benefit, or tax laws, at any workplace in New Jersey. The employer has just 72 hours to appeal the order to the Commissioner of the NJDLWD. The appeal does not automatically stay the effectiveness of the order. If a timely appeal isn’t filed, the order becomes final. Once final, any employee affected by the order will be entitled to pay from the employer for the first ten days of work lost because of the order. If the employer conducts business operations that are in violation of the order, the Commission can assess a civil penalty of $5,000 against the employer for each day of the violation.
  • Allows the NJDLWD to go directly to court to enjoin an employer from operating its business until it complies with applicable state wage, benefit, and tax laws. If the NJDLWD prevails in the litigation, the court must award the NJDLWD reasonable attorney’s fees, as well as litigation and investigation costs.

Misclassification of Worker

Governor Murphy’s administration has had a laser focus on ensuring that workers aren’t misclassified as independent contractors. Thus, it is important for employers to understand the standard applied in determining whether a worker is an employee or independent contractor.

In 2007, New Jersey amended its laws to provide a unified “ABC test” for determining employee status under its unemployment compensation and gross income tax laws. In 2015, in Hargrove v. Sleepy’s, the New Jersey Supreme Court held that the ABC test is also to be used for wage-hour purposes. Under the ABC test, a worker who meets any one of the following three tests will be deemed an employee:

  1. (A.) The employer exercises control and direction over the worker (e.g., telling the worker what to do and when to do it, setting specific timelines, and training the worker).
  2. (B.) The worker’s services are not performed outside the usual locations where the business operates and are not outside the usual types of services the organization provides.
  3. (C.) The worker hasn’t established an independent trade, occupation, profession, or business.

The Supreme Court’s opinion noted that the ABC test “presumes an individual is an employee.”

When in doubt, it is almost always better to treat a worker as an employee. Plus, you reduce the risk of a wall-to-wall audit by the NJDLWD, which could find numerous other wage-hour violations. All it takes is one disgruntled worker to trigger an audit.

Learn More

Several of our partner law firms have written articles that delve into 2020 and 2021 changes in the law:

Questions?

If you have questions, please contact Christine Michelle Duffy, Esq., or the Pro Bono Partnership lawyer with whom you usually work, at (973) 240-6955.

This document is provided as a general informational service to volunteers, clients, and friends of Pro Bono Partnership. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does distribution of this document create an attorney-client relationship.