New Jersey employment laws protect workers against many different types of misconduct by employers, from discrimination and harassment to withholding of earned regular and overtime wages. These laws generally only apply to “employees.” Employee misclassification occurs when an employer designates an employee as an independent contractor. While employees have legal remedies when this occurs, problems can arise with the precise meanings of terms. The definition of an “employee” varies from one state to another, and sometimes even from one statute to another. A 2015 decision by the New Jersey Supreme Court established a clear definition of “employee” for the purpose of wage and hour claims under state law. The New Jersey Legislature enacted several laws that include this definition, and that impose penalties on employers that misclassify their employees. A new law that took effect in spring 2020 requires employers to post notices of employees’ rights regarding misclassification.
What Is Misclassification?
In its 2015 decision on employee misclassification, the New Jersey Supreme Court noted that the “express purpose” of wage and hour laws is to provide “greater income security for workers.” Employees are entitled to protections under state and federal law that may, in some cases, increase employers’ financial obligations. This could include overtime compensation, paid or unpaid leave, workers’ compensation insurance, unemployment insurance, and federally-protected benefits, to name but a few. Employers are also responsible for withholding employees’ federal income taxes and payroll taxes from their paychecks, and matching the amount of payroll taxes. Employers have few or none of these obligations for independent contractors.
The plaintiffs, according to the court, alleged that misclassification “creates significant societal costs” because of “billions of dollars in lost revenue to state and federal governments.” Several amici curiae stated that misclassification of employees “is now common in many industries,” and that this has had “a cumulative societal effect” in which workers have fewer protections and governments receive less revenue. The court ruled in the plaintiffs’ favor, and adopted a formal definition of “employee.”