A series of newly enacted New Jersey laws targeting the service industry, collectively known as “The Misclassification Package,” aims to classify some prior independent contractors as employees. See N.J. Stat. § 34:1A-1.16-19. The bills as signed by Governor Murphy are a series of smaller scale bills. They do not change the definitions of an independent contractor versus employee, but do impose penalties for those misclassifying workers. As the package presupposes employers have misclassified the workers, it places unnecessary burdens upon employers engaged in legitimate independent contractor relationships. It also requires posting signage requiring employee misclassification. The sign most include, in a form issued by the commissioner, explaining:
- The prohibition against employers misclassifying employees;
- The standard that is applied by the department to determine whether one is an employee or an independent contractor;
- The benefits and protections to which an employee is entitled under State wage, benefit and tax laws;
- The remedies under New Jersey law to which workers affected by misclassification may be entitled; and
- Information on how a worker or a worker’s authorized representative may contact, by telephone, mail and e-mail, a representative of the commissioner to provide information to, or file a complaint with, the representative regarding possible worker misclassification.
When an employer does misclassify a worker as an independent contractor, these laws allow for the State to charged heavy penalties, such as stop-work orders, monetary fines ranging from $250 up to $5,000/day, with fines increasing for continued violations. See N.J. Stat. § 34:1A-1.16-19.
Despite these recent bills there is no significant change regarding how to determine classification. In New Jersey the “ABC test” is still the rule of law to determine whether a service provider is engaged in a true independent contractor relationship and is properly classified as an independent contractor. In order to be deemed an independent contractor, the individual and service must meet all of the following to the satisfaction of the State:
- Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
- Such service is either outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
- Such individual is customarily engaged in an independently established trade, occupation, profession or business. See N.J. Stat. § 43:21-19(i)(6).
An independent contractor must be free from control and direction of the service and established as an independent business, profession, trade or occupation, which will survive the termination of the relationship. See Phila. Newspapers, Inc. v. Board of Review, 397 N.J. Super. 309, 323 (App. Div. 2007). Additionally, the service performed is outside of the places of business of the contracting party, i.e. the independent contractor is not performing a service within the places of the business of the enterprise it has contracted with for services to be performed.
With increased penalties for misclassification, we suggest employers speak with legal counsel if they have any questions or concerns.