Seeking to tighten worker misclassification enforcement in New Jersey, on January 20, 2020, Governor Phil Murphy signed into law a package of legislation to add misclassification penalties, allow stop-work orders against employers for legal violations, promote agency information sharing, hold contractors and employers jointly liable for misclassification, and allow the state agency to publish information about state law violators.
The laws come on the heels of California's enactment of AB 5, a more expansive law codifying the ABC test for determining worker status. While ABC has been the independent contractor test in New Jersey for all purposes since 2015,1 the new package of laws is particularly concerning due to the significant amount of power it vests in the New Jersey Commissioner of Labor and Workforce Development (the "Commissioner") to make independent contractor determinations and assess significant penalties where the Labor Commissioner's track record of having such assessments upheld or rejected by New Jersey courts has been, at best, inconsistent.
For example, in 2017 in Garden State Fireworks, Inc. v. New Jersey Department of Labor and Workforce Development, Docket No. A-1581-15T2, 2017 N.J. Super. Unpub. LEXIS 2468 (App. Div. Sept. 29, 2017), the Appellate Division of the Superior Court of New Jersey found that the Labor Commissioner misapplied part C of the ABC test when taking the position that part C required individuals to have an "independently established enterprise or business" providing the same services for which they were hired by the alleged employer to be considered independent contractors. Instead, the court held that the key factor for part C is whether the putative employee will "join the ranks of the unemployed" when the challenged relationship terminates.
The following briefly describes the misclassification-related bills that were signed into law:
Effective immediately, Assembly Bill 5839 authorizes the Commissioner to assess an "administrative misclassification penalty" up to $250 per misclassified employee for a first-time violation and up to $1,000 per employee for subsequent violations, to pay for enforcement and administration of the law. These penalties would be assessed based on any history of previous violations, the severity of the violation, and the "good faith of the employer and the size of the employer's business." The law also imposes a fine of "no more than 5 percent of the worker's gross earnings over the past 12 months" to benefit misclassified workers. This amount will either be held in trust by the Commissioner or paid directly to the worker. The law provides that the Commissioner must give notice of an alleged violation before assessing a penalty and that the employer will have 15 days to request a hearing before a penalty is assessed.
Effective immediately, Assembly Bill 5838 permits the Commissioner, upon seven days' notice to the employer, to issue a stop-work order against any employer determined to be in violation of any state wage, benefit or tax law. A stop-work order issued under the new law requires the cessation of all business operations at every site where the violation occurred, and remains in effect until the Commissioner issues an order releasing the stop-work once the employer agrees to pay the required wages and has paid any wages or penalty owed. The Commissioner may assess a civil penalty of $5,000 per day against an employer for each day that it conducts business operations in violation of the stop-work order.
Effective immediately, Assembly Bill 5840 makes client employers and any labor contractors providing client employers with workers jointly and severally liable for any violation of state employer tax laws (workers' compensation, temporary disability benefits, state income tax), including provisions in those laws governing worker misclassification. The law explicitly states that "any person acting on behalf of an employer, including a client employer or labor contractor," who violates any state wage and hour law or employer tax law may be held liable as the employer for that violation.
Assembly Bill 5843 requires prominent postings listing rights and responsibilities concerning worker classification. The law directs employers to conspicuously post notices explaining: (1) the bar on employers' misclassifying workers as independent contractors; (2) the state definition on whether a worker is an employee or independent contractor, (3) what benefits and rights employees have under state law, (4) New Jersey remedies for workers who are misclassified; and (5) contact information to report misclassification complaints. The law becomes effective "on the first day of the third month next following enactment...."
Another posting-related law, effective immediately, Senate Bill 4226, allows the state Department of Labor and Workforce Development to publish on its website the name of any person found in violation of state wage, benefit, or tax law.
Effective immediately, Senate Bill 4228 allows the New Jersey Division of Taxation to share with the Department of Labor and Workforce Development any information, including, but not limited to, tax information statements, reports, audit files, returns, or reports of any investigation.
The worker misclassification issue remains a hot topic. Employers should examine carefully, with the guidance of counsel, their independent contractor relationships as soon as possible.
1 See Hargrove v. Sleepy's, LLC, 220 N.J. 289 (2015). To be an independent contractor, the ABC test requires that:
(A) 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
(B) 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
(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.
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