The start of 2020 has already proven to be a busy year for employers in New Jersey. In addition to becoming the first state in the nation to mandate severance payments for mass layoffs, New Jersey has enacted some sweeping changes to its independent contractor laws.
Governor Phil Murphy recently signed five bills aimed at addressing misclassification of workers. These bills impose new requirements on companies, expand the scope of liability, and give the New Jersey Department of Labor and Workforce Development significant new authority.
Increased Penalties (A5839)
Companies that misclassify independent contractors are now subject to increased fines and penalties.
First, the Commissioner of Labor and Workforce Development can impose an administrative "misclassification penalty." The penalty amount is up to $250 per employee for a first violation and up to $1,000 per employee for subsequent violations. Second, the company can be required to pay each misclassified employee up to 5% of the worker's gross earnings for the past year.
This Act takes effect immediately.
Access to Tax Information (A5842)
This law provides an exception to the confidential nature of an entity's tax records and files. Previously, disclosure was only permitted in actions or proceedings under the State Uniform Tax Procedure or the state tax law. Now, the Department of Labor and Workforce Development can obtain an entity's tax information statements, reports, audits, returns, and other files to use in any investigation regarding the wage, benefit, or tax laws. This law could have widespread implications if the Department of Labor and Workforce Development decides to target a specific industry.
This law takes effect immediately.
Stop-Work Orders (A5838)
This law now permits the Department of Labor and Workforce Development, on seven days' notice, to issue a stop-work order against any company that it determines is not in compliance with any wage, benefit, or tax law. The order remains in effect until the Commissioner releases it by finding that the employer is in compliance and has paid any associated penalties or after a hearing finding the employer did not commit the violation at issue. The law provides for an appeal mechanism, but only a 72-hour time frame to file the appeal. An entity can also seek injunctive relief from a court to have the order lifted.
This law, coupled with the Department of Labor and Workforce Development's new access to tax information, gives the Department significant authority and potentially unfair leverage in handling these matters.
Increased Scope of Liability (A5840)
This law amends New Jersey's wage and hour laws and tax laws (including laws covering unemployment, temporary disability, workers' compensation, and gross income tax) to expand potential liability. The law creates joint and several liability for "client employers" and "labor contractors." This includes violations attributable to misclassification of independent contractors. Significantly, this law also provides that liability can be imposed on "any person acting on behalf of an employer" including an "owner, director, officer, or manager." The effect of this law could be to significantly expand the world of individuals who can be found responsible for misclassification and other violations.
This law also takes effect immediately.
Posting Requirements and Anti-Retaliation (A5843)
Employers are now required to post information regarding the rights of individuals related to misclassification as an independent contractor through a posted notice. The posting will be in a form issued by the Commissioner of Labor and Workforce Development and will provide employees with information about misclassification and how to report potential violations. Perhaps most importantly, the law contains an anti-retaliation provision that provides workers who are discharged or suffer discrimination with a cause of action. Damages can include reinstatement, correction of classification, cost of the action, lost wages and benefits, and punitive damages in an amount equal to two times the wages lost.
Unlike the other laws, this law does not take effect until April 1, 2020.
More changes may be coming soon
There are additional bills pending in the New Jersey legislature that could potentially impact independent contractors, including the re-introduction of a bill that recently failed, which would change the test that New Jersey uses to determine if someone is an independent contractor. The pending law would make it even more difficult to have a worker properly classified as an independent contractor. We will watch this law and provide updates as they become available.
This article is presented for informational purposes only and is not intended to constitute legal advice.