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New Jersey Law Requires Employers to Notify Employees About Misclassification

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.”

What Is an Employee?

The New Jersey Supreme Court adopted a three-part definition of “employee” found in the Unemployment Compensation Law. It is known as the ABC test because of its codification in §§ 43:21-19(i)(6)(A) through (C) of the New Jersey Revised Statutes. A person who performs services “for remuneration” is an employee for the purposes of state wage and hour laws, unless they meet all three of the following criteria:
1. The employer does not exercise control over how and when the person performs their work;
2. The work is not part of the employer’s regular business activities, or the person does not work at the employer’s usual workplace; and
3. The person has their own “independently established trade, occupation, profession or business.”

Employers’ Posting Requirements in New Jersey

In addition to a law imposing civil penalties on employers that misclassify employees, the New Jersey Legislature passed a law requiring employers to notify employees of their rights. The notice must state that misclassification is prohibited by state law, and must describe the ABC test. It must also explain employees’ rights and the remedies they can obtain, and provide information on how to file a complaint with the state.

If you have a dispute with your employer in New Jersey or New York, the Resnick Law Group’s employment attorneys are available to assist you. Please contact us at 973-781-1204, at 646-867-7997, or online today to schedule a confidential consultation to discuss your case.

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