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Task Force Releases Report on Misclassification of Employees as Independent Contractors in New Jersey

New Jersey employment statutes protect workers against a variety of acts by employers, but in order for these protections to apply, an employment relationship must exist. Independent contractors generally do not fall within the scope of these laws. Employers therefore sometimes attempt to classify workers as independent contractors when they should be employees. This is known as “misclassification.” In May 2018, the Governor of New Jersey established a task force to make recommendations on how the state can address employee misclassification. The task force released a report in July 2019 that provides 10 recommendations for identifying misclassification, enforcing state law, and deterring employers from misclassifying their employees.

Employee Misclassification

The task force defines misclassification as “the practice of illegally and improperly classifying workers as independent contractors, rather than employees.” It states in its report that the practice has increased over the past decade by about 40 percent. It attributes this, in large part, to the “fissured workplace,” in which companies use an extensive network of outsourced contractors and subcontractors.

In a 2015 ruling, the New Jersey Supreme Court adopted the “ABC test” for determining whether an individual is an employee or an independent contractor, based on a definition of “employment” codified at N.J. Rev. Stat. §§ 43:21-19(i)(6)(A) – (C). The test presumes that a person is an employee unless their working conditions meet three criteria. The individual’s work must be generally free from control by the employer, the services performed by the individual must be either not part of the employer’s usual business or performed somewhere other than the employer’s usual place of business, and the individual must have their own “independently established trade, occupation, profession or business.”

Employers in New Jersey have greater obligations to employees than to independent contractors. They must withhold federal income and payroll taxes for employees, and they must make contributions to unemployment and disability insurance funds. Their obligations to an independent contractor are largely limited to the terms of the contract between the two parties.

The Task Force’s Report and Recommendations

The task force’s report cites estimates from the state that employers misclassified over 12,000 individuals in New Jersey in 2018, resulting in hundreds of millions of dollars in underreported wages, and tens of millions of dollars in underpayments to state insurance funds.

The report makes 10 recommendations for addressing employee misclassification:

1. Education and Outreach: The task force recommends creating a webpage and other publicly accessible resources to make employers and workers aware of the issue.
2. State Contracting: It suggests making compliance with the ABC test mandatory for state contractors and entities that receive state funding.
3. Coordination: State agencies should work together to investigate complaints and enforce state law.
4. Information: State agencies should share information to the greatest extent possible.
5. Interstate Cooperation: New Jersey agencies should work with similar agencies in neighboring states to share information and coordinate investigations.
6. Training: Field investigators across various agencies should receive the same training.
7. Criminal Referrals: Administrative agencies should refer matters to the Attorney General when appropriate.
8. Workers’ Compensation: Existing laws provide mechanisms for deterring and penalizing misclassification.
9. Stop-Work Orders: The state already has the authority to revoke a construction contractor’s registration for employee misclassification. See N.J. Rev. Stat. § 34:20-7.
10. Legislation: The task force describes legislation that could further facilitate its recommendations.

The employment attorneys at the Resnick Law Group represent workers in New Jersey and New York who may have been misclassified as independent contractors. Contact us today online, at 973-781-1204, or at 646-867-7997 to schedule a confidential consultation to see how we can help you.

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