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New Laws, Administrative Actions Take on Employee Misclassification in New Jersey

New Jersey labor laws protect workers’ rights to a minimum wage, overtime pay, unemployment insurance, a workplace free of discrimination and harassment, and other matters. These laws regulate the relationship between employers and employees. Unfortunately, some employers try to evade their responsibilities by classifying employees as independent contractors. Employee misclassification is a violation of state law. New Jersey employment law places most of the burden of proof on employers to establish that an individual is not an employee. Legislation signed by the Governor in January 2020 assesses penalties for misclassification and requires employers to post notices of workers’ rights. In late 2019, the New Jersey Department of Labor and Workforce Development (LWD) demanded almost $650 million in unpaid employment taxes and interest from a rideshare company that has frequently been the subject of misclassification complaints.

Employees in New Jersey are covered by a rather vast array of federal, state, and local employment laws. They cover issues ranging from wages and hours to workplace safety. Some statutes only apply to employers with a minimum number of employees, while others apply to all employers. Independent contractors are not covered by these laws. Their legal protections are largely limited to the terms of their contracts and contract law. Many statutes do not provide a particularly helpful definition of an “employee.” The federal Fair Labor Standards Act, for example, defines an employee as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1).

State law fills in gaps left by federal statutes. In 2015, the New Jersey Supreme Court adopted a definition of “employee” known as the “ABC test,” based on §§ 43:21-19(i)(6)(A) through (C) of the New Jersey Revised Statutes. An individual is presumed to be an employee unless the employer can establish three elements:

1. The employer does not exercise control over how the individual performs their job, both in the text of the contract and in actual practice;
2. The individual’s job is outside the scope of the employer’s regular business, or the individual performs their job away from the employer’s business premises; and
3. The individual works in their own separate business or trade.

The Governor signed several employment-related bills into law on January 20, 2020. Two of these bills directly relate to employee misclassification. A5839 provides civil penalties for misclassification. An employer is liable for a penalty payable to the state for $250 per misclassified employee, increasing to a maximum of $1,000 for subsequent violations involving the same individuals. Penalties payable to the employees themselves may be assessed up to a maximum of five percent of their annual gross wages. The second bill, A5843, requires employers to post a notice about employee misclassification that includes the three elements of the ABC test.

In November 2019, the LWD sent letters to a California-based rideshare company and a subsidiary demanding payment of $649 million. An audit reportedly found that the companies failed to pay $530 million in state employment taxes from 2014 to 2018. The LWD attributed this to misclassification of the company’s drivers as independent contractors. It assessed a further $119 million in interest on the unpaid taxes.

The Resnick Law Group’s employment attorneys advocate for the rights of workers in New Jersey and New York in claims of employee misclassification and other unlawful employment practices. To schedule a confidential consultation with a member of our team, please contact us today online, at 973-781-1204, or at 646-867-7997.

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