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Some New Jersey Workers Likely Impacted by Withdrawal of U.S. Department of Labor’s New Rule That Defined “Independent Contractors” Under the FLSA

New Jersey employment laws ensure that employers pay minimum wage to all non-exempt employees, as well as a greater rate of pay for overtime hours. These laws only apply to “employees.” Employee misclassification happens when an employer wrongly classifies an employee as an “independent contractor.” State law has a clear definition of “employee” for the purposes of wage and hour law, which sets strict limits on employers’ ability to designate someone as an independent contractor. At the federal level, the definition is not as clear. Beginning in late 2020, the U.S. Department of Labor (DOL) developed a rule defining “employee” and “independent contractor” for the Fair Labor Standards Act (FLSA). The final rule, published in January 2021, was far more favorable to employers than New Jersey’s rule. When the new presidential administration took over in late January, it postponed the effective dates of all new administrative rules. The DOL has since sought to withdraw the new rule.

The FLSA requires employers to pay their non-exempt employees a minimum wage of $7.25 per hour, and to pay them at one-and-a-half times their usual rate for work that exceeds forty hours in a week. See 29 U.S.C. §§ 206(a)(1), 207(a). Exemptions include people employed in professional or executive capacities, and various other specific jobs. Id. at § 213. The statute is specific about only applying to “employees,” but it does not provide particularly clear definitions of “employ” and related terms. It defines “employ” as “to suffer or permit to work,” and “employee” as “any individual employed by an employer,” with some exceptions. Id. at §§ 203(e)(1), (g).

New Jersey law states that employers should consider their workers to be employees unless they meet all three parts of the “ABC test,” named for the definition of “employee” found in N.J. Rev. Stat. §§ 43:21-19(i)(6)(A), (B), and (C):
A. The worker, not the employer, controls the time and manner of their work;
B. The worker’s services are either not part of the employer’s “usual course of business,” or they do their work away from the employer’s regular business premises; and
C. The worker has their own “independently established” business operation.
This definition tends to favor classification as an employee. The New Jersey Supreme Court adopted it for wage and hour claims in a 2015 decision. State regulators and the New Jersey Legislature have incorporated it further into state law.

The DOL’s proposed rule would have based the distinction between employees and independent contractors on “economic dependence,” calling it an “economic realities test.” Unlike the ABC test, it made no presumption of employee status. It would have consisted of two “core factors”:
1. The extent to which the worker has control over the work; and
2. Whether the worker can increase their earnings or losses by any means other than increased output or working longer hours.

The DOL identified three other factors, which carried less weight than the core factors:
1. The level of skill or training required for the job;
2. The nature of the employment arrangement, e.g. whether it is of indefinite duration or sporadic; and
3. Whether the worker’s job can be separated from the employer’s regular business operations.

The employment lawyers at the Resnick Law Group are available to assist you if you have experienced misclassification or other unlawful practices by your employer in New Jersey or New York. 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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