Latest Package Of New Jersey Laws Further Targets Independent Contractor Status

Much of the focus on state laws regulating independent contractor status has been on California and its embrace of the ABC test through the AB5 regulation, whose exclusion from the state's trucking sector hangs on a battered injunction.

But it may be New Jersey that is at the head of the move to restrict independent contractor status. The Garden State is taking a growing series of steps that will make it tougher to operate as an independent contractor, even if the ABC test was never adopted into formal legislation in the state despite efforts to enshrine it in state law. 

The latest package of laws signed by Gov. Patrick Murphy do not significantly change regulation of independent contractors in the state, according to Lisa Yakomin, the president of the Association of B-State Motor Carriers. That group represents trucking interests across both New York and New Jersey, with particular emphasis on the drayage sector that serves the Port of New York and New Jersey.

Rather, she said in an interview with FreightWaves, "the issue is that already we have the strongest laws in the country." The specifics of the current law are less important to Yakomin's group than the fact that the net effect of all the independent contractor regulation in the state "makes it extremely unattractive to use independent contractors."

Murphy signed five pieces of legislation last week. The most significant appears to be A5890, which builds on legislation signed in early 2020 granting the state a range of powers to deal with companies it has determined are misclassifying workers. One of the more severe remedies that the 2020 law granted to the state is the ability to shut a business down but order the company to continue paying its worker during that shutdown. 

The trucking industry was cited back in January 2020 by the labor law firm of FordHarrison when the attorneys were looking for an example of how those rules might impact the question of classification. "Assume the [state] DOL decides that owner/operators within the trucking industry are routinely misclassified and targets this industry for investigation," the firm said in its example. "The DOL could obtain all tax records from large motor carriers and, subsequently, their owner/operators from the treasury prior to beginning its audit. The DOL could then perform a cursory audit to confirm its assessment, which would include the enhanced penalties. If the employer objected to the assessment, the DOL could issue a stop-work order."

Other provisions in the group of laws signed by Murphy include creating the Office of Strategic Enforcement and Compliance that coordinates enforcement of various existing laws that impact independent contractor status; a law that "streamlines" the definition of independent contractor status; and creating a statewide database of payroll information for public works projects, to ensure correct classification for companies doing business with New Jersey. 

Attorneys Patrick McGovern and Daniel Pierre of the firm of Genova Burns provided analysis of each of the provisions on the firm's website. For example, the law expanding the ability to stop work at a company violating classification rules "increases the tools available to the [state's] Department of Labor to encourage compliance … and to exact penalties for noncompliance."

The net sum of the changes, the attorneys wrote, is that employers "should realize that the risks associated with classifying workers improperly as independent contractors in New Jersey may now be more than what they can afford, given the prospect of stop-work orders, the cost of paying employees for 10 days, heavy fines, agency enforcement actions, and bad publicity."

Eric Richard, the legislative director of the New Jersey AFL-CIO, said that while the state has had the stop order capabilities since the package of bills Murphy signed in January 2020, that tool "is typically not used that often, usually only in egregious situations where the employer is not being cooperative."

But back in 2020, Genova Burns published an analysis that saw those changes as giving the Department of Labor "significant authority to levy civil and criminal penalties and fines, to issue stop-work orders, and to place offender information online."

Arguing about the specifics is a secondary concern, Yakomin said. What matters — and this is a phrase she used several times — is the "chilling effect" of using independent contractors given the state's clear interest in issues of employee classification.

"What we've seen in the overly aggressive way of putting through all these misclassification penalties is that it makes it scarier for companies to utilize independent contractors," Yakomin said. 

And that is the goal, according to Genova Burns' commentary on the most recent additions to the state's body of law. The new rules signify the state's "continued commitment not only to penalize employee misclassification but also to discourage use of the traditional independent contractor model."

Not surprisingly, Richard of the AFL-CIO supports the steps the state has taken. He said he has "firsthand knowledge of workers saying, this is standard procedure, to get hired as ICs. Management doesn't even attempt to determine if they are employees or an independent contractor."

The FordHarrison commentary on the 2020 laws made clear that such behavior should be avoided. Companies that use independent contractors should be looking at all the individuals who did work for them and who were paid under an IRS form 1099, "along with recurring payments from cash ledgers, and reevaluate those relationships in light of these new laws."

One test of determining independent contractor status under various legal precedents is whether a worker is truly independent and not doing all or almost all of his or her work for one employer. Yakomin said that becomes even more important with the new enforcement powers in the hands of the state. 

Trucking companies are going to "want to make sure their drivers take every step possible to be legitimately established independent contractors, so they have to make sure if they want to use them that they are working for other trucking companies," she said. "Because one of the things they're looking at is that you're just not working for one company but you're making yourself available."

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