The Office of the Commissioner, Department of Labor and Workforce Development (the “NJ DOL”), recently published a notice of proposed new rules (“proposed rules”) addressing independent contractor status in New Jersey (N.J.A.C. 12:11). The proposed rules seek to provide clear guidance as to how to apply the ABC test which is utilized by the NJ DOL in evaluating cases under laws such as the New Jersey Unemployment Compensation Law, the Wage Payment Law, the Temporary Disability Benefits Law, the Wage and Hour Law, and the Earned Sick Leave Law.
The NJ DOL’s goal is to codify its interpretation of the ABC test, relying on New Jersey Supreme Court opinions such as Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991) and East Bay Drywall, LLC v. Dep’t of Labor and Workforce Development, 251 N.J. 477 (2022). In turn, the NJ DOL hopes that “employers are well-informed and better equipped to make appropriate classification decisions.”
Notably, the proposed rules appear to come at a time when President Trump and the current presidential administration has indicated that it will reverse course from the Biden administration’s application of a stricter independent contractor test and take a looser approach. The proposed rules seek “not only to safeguard the rights and benefits of employees who have been wrongly classified as independent contractors, but also to affirm the right of genuine independent contractors to forgo employment in favor of engaging in independently established business enterprises.”
Overall, the proposed rules aim to provide guidance on the principles and factors used to determine independent contractor status and explain the employer’s burden of proof to establish independent contractor status under the ABC test. The NJ DOL will require that all three prongs of the ABC test be met for an individual to be classified as an “independent contractor”:
(A) The individual is free from control or direction over the performance of the work;
(B) The work is performed outside the usual course of business or outside the business’s physical location; and
(C) The individual is engaged in an independently established trade, occupation, profession, or business.
The proposed rules then elaborate on the criteria for meeting each of the prongs and explain arrangements that would and would not meet each prong so that employers can attempt to minimize risk and properly classify workers.
Prong A
The proposed rules clarify that to meet its burden under Prong A, an employer must establish not only that the employer has not exercised control in fact, but also that the employer has not reserved the right to control the individual’s performance. Further, the proposed rules state that an employer need not control every facet of a person’s responsibilities for that person to be deemed an employee. The proposed rules provide that the following non-exhaustive factors may be considered when assessing worker control under Prong A:
- Whether the individual is required to work any set hours or jobs;
- Whether the employer has the right to control the details and means by which the services are performed by the individual;
- Whether the services must be rendered by the individual personally;
- Whether the employer negotiates for and acquires the work performed by the individual;
- Whether the individual’s rate of pay is fixed by the employer;
- Whether the individual bears any risk of loss for the work they perform;
- Whether the individual is required to be on call, on standby, or otherwise available to perform services at set times determined by the employer, even if the individual does not actually perform services at such times;
- Whether the employer limits the individual’s performance of services for other parties such as by limiting the individual’s geographic area or potential clientele; and
- Whether the employer provides training to the individual.
Prong B
To meet Prong B, it must be established that the work that the individual is performing is either outside the employer’s usual course of business or “outside of the employer’s places of business.”
The employer’s “usual course of business” includes activities the employer regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services. An entity may have more than one usual course of business. The proposed rules state that a dentist who engages the services of a cleaning person to clean the dental office is likely to be an independent contractor because the services performed by the cleaning person are likely outside of the dentist’s usual course of business. On the other hand, if a country club engages the services of a caddie to assist the country club’s members on the country club’s golf course, the services performed by the caddie are likely not outside of the country club’s usual course of business.
The proposed rules state that “places of business” refers to those locations where the enterprise has a physical plant or conducts an integral part of its business and extends to places where an individual performs services that are an essential component of the employer’s business, rather than ancillary to the employer’s business. The proposed regulations give the example of a residence where remote work or installation work is performed, such as airplanes (for an airlines business), trucks (for a trucking business) or vehicles (for a transportation network or delivery service) which are outside of the employer’s physical plant, but where the employer conducts an integral part of its business.
Prong C
To meet prong C, it must be established that the individual is engaged in an independently established trade, occupation, profession, or business. In evaluating same, the following non-exhaustive factors may be considered:
- The duration, strength, and viability of the individual’s business (independent of the employer);
- The number of customers of the individual’s business and the volume of business from each respective customer;
- The amount of remuneration the individual receives from the employer compared to the amount of remuneration the individual receives from others in the same industry;
- The number of employees of the individual’s business;
- The extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources;
- Whether the individual sets their own rate of pay; and
- Whether the individual advertises, maintains a visible business location, and is available to work in the relevant market.
Takeaways
In light of the proposed rules, employers may want to consider internally assessing their relationships with workers to ensure that all workers are properly classified as employees or independent contractors, as well as reviewing and revising any current workplace policies and procedures, and contracts to ensure compliance with the proposed rules.
This summary is for informational purposes only and is not intended to constitute legal advice. This information should not be reused without permission.