State Labor Department Scrutinizing Worker Classification

Printer-friendly version

The New Jersey Department of Labor and Workforce Development may be a big battle ship that turns ever so slowly, but once it takes aim it hardly misses its mark.

In July, 2019, a Department task force issued a report recommending strong medicine for employers that misclassify workers.  Misclassification is the practice of improperly classifying workers as independent contractors, rather than employees. The practice cheats workers out of overtime pay and unemployment insurance, as well as eliminates many worker protections.

Since then, legislation has been enacted to stiffen the penalties against employers for misclassification mistakes and the Department has taken aim as some big employers to collect penalties.   In September, Uber, the ride-share giant, reimbursed the state’s Unemployment Trust Fund for a combined $78 million in past-due contributions, plus penalties and interest of $22 million covering 297,866 drivers who were misclassified as independent contractors.

While Uber insists that their drivers are independent contractors who work when and where they want, New Jersey applies the “ABC test” to determine employee status.

The ABC test has long been used by the Department and recent decisions by both federal and state courts have highlighted the importance for employers to properly classify workers under the ABC test.

Under the ABC test, a worker is considered an employee unless all the following circumstances apply:

A.    The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact; and

B.    The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed; and

C.    The individual is customarily engaged in an independently established trade, occupation, profession or business.

“Employers should understand that once an individual provides remunerated services, this constitutes employment, unless the services are exempt or the statutory requirements for the ABC test have been met,” says John Sarno, president of the Employers Association of New Jersey.

In New Jersey, an employee-employer relationship can be found even though that relationship may not satisfy the employer’s business needs, he says

The determination of employee v. independent contractor status is particularly difficult in certain situations. It is important to know the law and regulations; the consequences for not knowing can be significant.

Join Amy Vazquez on October 26th for Understanding and Applying NJ’s ABC Test.