N.J. Governor Orders Fresh Focus On Worker Misclassification

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On May 3, 2018 New Jersey Governor Phil Murphy signed Executive Order No. 25 which authorizes a 12-person task force to review misclassification of workers as independent contractors in New Jersey, with a focus on the construction industry.  The Employee Misclassification Task Force will be responsible for examining misclassification enforcement, developing practices to improve enforcement of current law, making recommendations to encourage compliance with the law, and reviewing existing state law and applicable procedures related to worker misclassification.

The reasons advanced by the Governor for launching the Task Force are that misclassification as an independent contractor results in workers’ losing legal rights and employment related benefits, harms the State’s economy by non-payment of State and federal payroll taxes, serves as a barrier to union organizing, and provides non-compliant employers with an unfair competitive advantage over employers that properly classify their workers.

The Task Force will include three representatives of the State Department of Labor and Workforce Development, three representatives of the Department of the Treasury, one representative each of the Departments of Law and Public Safety, Agriculture, Banking and Insurance, Human Services, and Transportation, and a representative of the Economic Development Authority. Notably, the Task Force will have no representation from the plaintiffs’ or defense bars, at least at the outset.

In light of the State’s renewed crackdown, employers must be cognizant that the designation of a worker as an independent contractor in New Jersey is not a matter of semantics but must be defensible under legal precedent. Specifically, New Jersey adheres to the “ABC” test in distinguishing an independent contractor from an employee. This test presumes that a worker is an employee of the service recipient and places the burden on the service recipient to establish otherwise.

To meet this burden, an employer must show that:

  • The worker has been and will continue to be free from control or direction of the performance of the service, both in the service contract and in fact;
  • The worker’s service is either outside the usual course of business for the service recipient, or is performed outside of all the places of the business of the service recipient; and
  • The worker is engaged in an independently established trade, occupation, profession or business.

If any of these three criteria is not met, the worker is properly classified as an employee.  Accordingly, a New Jersey employer must carefully assess the status of its workforce in light of the heightened attention to misclassification at the state level.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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