New Jersey Tightens Up Already Stringent Independent Contractor Enforcement Hammers: Is There No End In Sight?

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I have often blogged about the very enforcement-oriented stance of the Murphy Administration and the New Jersey Department of Labor (“NJDOL”). Well, I have now even more evidence. On July 8, 2021, Governor Murphy signed three bills into law that broaden the agency’s power to enforce State wage, benefit, and tax laws.

The first law, A-5890/S3920, which takes effect immediately, gives the Commissioner, at his “sole discretion,” the power to bypass the Office of Administrative Law and bring an enforcement action for any violation of State wage, benefit and tax law in Superior Court. Upon filing a complaint, the Commissioner may seek an injunction against the employer. Additionally, any entity that fails, for any reason, to furnish information required will be guilty of a disorderly persons offense and may be fined $1,000. Each day that the entity fails to furnish records will constitute a separate offense. Previously, an employer or its agent would only be subject to penalties for a willful failure to furnish information required by to the commissioner.

A-5890 also provides for much more punitive stop-work orders. If the Commissioner determines that an employer is in violation of any State wage, benefit or tax law, the Commissioner has the power to issue a stop-work order against the employer requiring cessation of all business operations of the employer at any number of worksites, or across all of the employer’s worksites and places of businesses. A final stop-work order remains in effect until the Commissioner is satisfied that the employer is complying with State laws and has paid any penalties.

The second statute (A-5891/S3921) creates the “Office of Strategic Enforcement and Compliance” in the NJDOL. The Office of Strategic Enforcement and Compliance will oversee and coordinate enforcement of State wage, benefit, and tax laws across the divisions of the NJDOL and between the agency and other State agencies. The new law requires the NJDOL to determine whether an individual has any outstanding liabilities to the agency (i.e., unpaid contributions to unemployment compensation fund or state disability benefits) as a precondition to awarding the individual direct business assistance from the department, or for the NJDOL to provide a report to another state agency or entity that the business is in good standing. If the department determines that the person has any outstanding liabilities, the application for business assistance will be denied.

The third law (A-5892/S3922) takes effect on January 1, 2022 and makes misclassifying employees for the purpose of evading insurance premium payments a violation of the New Jersey Insurance Fraud Prevention Act (“NJIFPA”). For example, if an employer purposely or knowingly “makes a false or misleading statement, representation, or submission, including failing to properly classify employees in violation of state wage, benefit and tax laws, for the purpose of evading the full payment of insurance benefits or premiums.” A person or business found in violation of the NJIFPA will be liable in a civil action for a penalty of $5,000 for the first offense, $10,000 for the second offense, and $15,000 for each subsequent offense.

The Takeaway

The new laws expand the DOLWD’s power to enforce State wage, tax and benefit laws and increase employer exposure and liability for any potential violations. Given that most of the new laws go into effect immediately, employers that use independent contractors must re-examine their worker classifications to determine if these independent contractors meet the stringent New Jersey A-B-C test that is the standard for making such determinations. With these escalating penalties and the threat if a crippling stop-work order, employers may want to shy away from using or classifying workers as independent contractors.

Better safe than sorry…

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