NJ Continues Its Aggressive Crackdown on Independent Contractor Misclassification

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Seyfarth Synopsis: New Jersey Governor Phil Murphy signed a legislative package into law on July 8, 2021 that increases enforcement mechanisms for state agencies to impose a variety of penalties against employers who misclassify workers as independent contractors and creates a new office specifically designed to enforce such violations.  Most portions of the legislation are effective immediately.

Continuing his commitment to combat perceived worker misclassification in the Garden State, Governor Murphy signed additional legislation regarding independent contractor misclassification.  We discussed the 2020 legislative efforts by the Murphy administration to address misclassification concerns here.  Now, Governor Murphy has taken the following additional steps, in his administration’s words, to ensure that “New Jersey is the best state in which to be a worker in the entire country”:

  • Court InjunctionBill A-5890/S3920 empowers the Commissioner of the Department of Labor and Workforce Development (“DOL”) to seek a superior court injunction to prevent ongoing violations of state wage, benefit, and tax laws stemming from employee misclassification, for which the Commissioner would be entitled to collect attorneys’ fees and litigation costs should it prevail.  The law does not provide any standards or factors the Commissioner must consider in determining whether to pursue an enforcement action and instead leaves such an analysis to the Commissioner’s “sole discretion.”  This provision takes effect immediately.
  • Stop-Work Orders. While the Commissioner was already able to issue a stop-work order for the “specific place of business” where a misclassification violation occurred, Bill A-5890/S3920 goes further and empowers the Commissioner to issue a stop-work order for one or more worksites, or across all an employer’s worksites, when the employer commits a single violation of a state wage, benefit, or tax law.  These stop-work orders can remain in effect until the Commissioner finds that the employer has come into compliance and has paid any penalties assessed and are not stayed by an employer’s request for a hearing.  Moreover, the stop-work order will become a final order after 72 hours should an employer not request an appeal in writing of the Commissioner’s decision to issue the order.  Additionally, workers affected by such a stop-work order are entitled to be paid by the employer for the first 10 days of work lost because of the stop-work order.  The Commissioner may bring any legal action necessary to collect any unpaid wages for the first 10 day of a stop-work order.  Finally, the Commissioner may assess a civil penalty of $5,000 per day against an employer for each day that it conducts business operations that are in violation of the stop-work order.  This provision takes effect immediately.
  • Creation of the Office of Strategic Enforcement and ComplianceBill A-5891/S3921 creates a new office within the DOL — the Office of Strategic Enforcement and Compliance (“OSEC”) — to oversee and coordinate across the divisions of the DOL, and between the DOL and other state agencies and entities, for the strategic enforcement of state wage, benefit, and tax laws.  The law provides that, as a condition for receiving an award of direct business assistance from the DOL, or for the DOL to provide a report to another state agency or entity that a business is in good standing, the DOL will first determine whether the person or business has any outstanding liability to the DOL, including for unpaid contributions to the unemployment compensation fund or the state disability benefits fund, unless the business has entered into an agreement with the DOL to immediately and fully comply with the statutes and rules enforced by DOL and to resolve all delinquencies or deficiencies within a time period specified by the Commissioner.  The bill appropriates $1 million to the DOL to support and expand OSEC to effectuate the purposes of the bill.  This law is effective immediately.
  • Insurance FraudA-5892/S3922 makes misclassifying employees for the purpose of evading payment of insurance premiums a violation of the New Jersey Insurance Fraud Prevention Act and provides penalties for fraud involving misclassification — $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation.  Moreover, this bill permits the Bureau of Fraud Deterrence and the insurance fraud prosecutor to consult with the DOL to assist with the investigation of the failure to properly classify employees “for the purpose of wrongfully obtaining the benefits or of evading the full payment of the insurance benefits or insurance premiums.”  This law is effective either January 1, 2022 or February 1, 2022.[1]

Given these developments, the existing use of the ABC test in New Jersey, and a wage theft law that provides workers with a six-year statute of limitations and three times liquidated damages, employers with operations in New Jersey must consider how these new laws impact their business models, particularly those that rely on independent contractors in support of their business operations.  With New Jersey moving to the forefront of independent contractor compliance, employers are advised to conduct a review of their pay, timekeeping, and classification practices and policies in light of these developments.  Please feel free to consult with any of the authors regarding these and other New Jersey-specific updates.

[1] The legislation states “This bill shall take effect on the first day of the sixth month next following the date of enactment.”

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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