The New Jersey Legislature is expected to vote on legislation that could have major implications on businesses and independent contractors.  NJ Senate Bill 4204 was introduced to attempt to curb alleged abuses by companies like Uber and Lyft that are accused of misclassifying people as independent contractors when the State of New Jersey believes that Uber/Lyft workers should be classified as full-time employees.

The proposed legislation could have far reaching implications and may result in “independent contractors” being re-classified as “employees” and businesses getting hit with penalties for failing to properly classify the workers and failing to provide notice to workers of the different type of classification.

If enacted, the law would make it significantly harder for companies to classify individuals as independent contractors.

You may say what’s wrong with that?

The “independent contractor” or “employee” designation is important because it determines the payment of social security benefits, worker’s compensation benefits, Federal and State employee tax withholding as well as the application of wage and labor hour laws and unemployment insurance benefits.

Currently most states use what is referred to as the ABC test which is a guide for employers to help determine if a worker is considered an independent contractor or an employee in the eyes of the government. Several states require the use of the ABC test—in part or in whole—to determine the status of workers.

Under the current version of the ABC test or legal test, an individual is considered an employee of a company he or she is working for unless the business can show that:

  1. The worker is free from control or direction over the performance of their work or services by the business – what is referred to as the “right to control test”;
  2. The work or service is either outside the usual course of the business for which it is performed, or the work/service is performed outside of all the places of business of the enterprise for which it is performed, what is referred to as “the relative nature of the work test”; and
  3. The worker is customarily engaged in an independently established trade, occupation, profession, or business.

So, if it can be shown that the business controls or directs the performance of the so called independent contractor’s work, i.e. what to do, where to go, who to call on, hours or days that have to be worked, a business would have been deemed to fail “the right to control test” and in all likelihood, the independent contractor would be classified as an employee.

Under “the relative nature of the work test”, if a business manufacturers and sells widgets and the worker is engaged in the same business or type of business, in all likelihood the independent contractor would be classified as an employee.

If enacted, Bill S4204 would eliminate the ability for companies to satisfy prong “B” by showing that the work/service performed by the contractor is performed away from the company’s place of business. A company would now only be able to satisfy prong “B” by showing that the work performed by the worker is outside of the company’s usual core business. This could pose a serious problem to businesses that use independent contractors to deliver or provide their core product or service of the business.

The additional proposed bills approved by the New Jersey Assembly Labor Committee all focus on the intentional misclassification of workers, ranging from:

Proposed Bill A5843 requiring employers to post notice for employees on misclassification of employee or independent contractors

Proposed Bill A5839 to paying penalties for misclassifications

Proposed Bill A5841 to creating a list for employers found in violation

Proposed Bill A5843

This bill requires employers to post a notice for their employees regarding employee misclassification.  Specifically, under the bill, an employer is required to conspicuously post notification, in a place or places accessible to all employees in each of the employer’s workplaces, in a form issued by the commissioner, explaining:

  1. The prohibition against employers misclassifying employees;
  2. The standard that is applied by the department to determine whether one is an employee or an independent contractor;
  3. The benefits and protections to which an employee is entitled under State wage, benefit and tax laws;
  4. The remedies under New Jersey law to which workers affected by misclassification may be entitled; and
  5. Information on how a worker or a worker’s authorized representative may contact, by telephone, mail and e-mail, a representative of the commissioner to provide information to, or file a complaint with, the representative regarding possible worker misclassification.

The bill prohibits an employer from discharging or in any other manner discriminating against an employee because the employee has made an inquiry or complaint to his employer, to the commissioner or to his authorized representative regarding possible worker misclassification, or because the employee has caused to be instituted or is about to cause to be instituted any proceeding regarding worker misclassification under State wage, benefit and tax laws, or because the employee has testified in the proceeding.

Under the bill, an employer who violates any of those provisions will be guilty of a disorderly persons offense and will, upon conviction, be subject to a fine of not less than $100 nor more than $1,000.  An employer will also be required to offer reinstatement in employment to a discharged employee and to correct any discriminatory action, and to pay the employee all reasonable legal costs of the action, all wages and benefits lost as a result of the discharge or discriminatory action, plus punitive damages equal to two times the lost wages and benefits, under penalty of contempt proceedings for failure to comply with the requirement.

Proposed Bill A5839

This bill provides for the assessment of penalties for violations of State wage, benefit and tax laws in connection with the misclassification of employees.

The bill authorizes the Commissioner of Labor and Workforce Development, in the case of a violation of a State wage, benefit and tax law in connection with failing to properly classify employees, to impose the following penalties in addition to any other remedies or penalties authorized by law: authorized to assess and collect:

  1. An administrative “misclassification penalty” up to a maximum of $250 per misclassified employee for a first violation and up to a maximum of $1,000 per misclassified employee for each subsequent violation; and
  2. A penalty to be provided for the misclassified worker of not more than 5 percent of the worker’s gross earnings over the past twelve months from the employer who failed to properly classify them.  The employer may be required to make these penalty payments to the commissioner to be held in a special account in trust for the worker, or paid on order of the commissioner directly to the worker.

Proposed Bill 5841

This bill permits, notwithstanding any federal or State law to the contrary, the Department of Labor and Workforce Development (DOLWD) to post to a list on its website the name for any person who is found to be violation of any State wage, benefit, or tax law, and against whom a final order has been issued by the Commissioner of the DOLWD or other appropriate agency head for any violation of State wage, benefit and tax laws.

The DOLWD is required to provide notice to the person of its intent to post the person’s name on the DOLWD’s website 15 business days prior to the posting.  A person who receives a notice of intent to be placed on the list is entitled to the right to request a hearing within 20 days.

The bill provides that a person placed on the list is prohibited from contracting with a public body until the liability for violations of State wage, benefit, and tax laws have been resolved to the satisfaction of the commissioner.

The bill enumerates several factors for the commissioner’s consideration in determining whether to place a person on the website list.

Stay tuned to see if the Governor signs into law this proposed legislation.

Blair C. Lane, Sr., Esquire is an attorney and works with businesses in the State of New Jersey and Pennsylvania and is shareholder with the Earp Cohn P.C. law firm, 20 Brace Road, 4th Floor, Cherry Hill, NJ 08034, 856-354-7700 (e-mail: