New Jersey is one of the more aggressive states in seeking to punish employers for the misclassification of their workers. It recently upped the stakes for employers by enacting the New Jersey Wage Theft Act, which was signed into law on August 6, 2019.
The WTA increases employer penalties for violations of wage and hour laws, including misclassification of employees as independent contractors, by adding liquidated damages and providing additional protections for employee retaliation claims. The WTA significantly increases the risks and cost of misclassification for New Jersey employers.
New Jersey follows the “ABC” test in determining independent contractor status. Pursuant to this test, to establish independent contractor status for a worker, the employing unit must prove that the worker meets all three of the following provisions:
- A: is free from direction and control in performing the services;
- B: provides a service outside of the employing unit’s usual course of business OR outside of all of the employing unit’s places of business; and
- C: is engaged in an independently established trade, occupation, profession or business.
The ABC test sets an imposing standard and makes it difficult for employers to establish independent contractor status. Correct implementation of the ABC test is critical if employers wish to avoid heightened liability under the WTA.
In particular, employers should be aware of the following provisions of the WTA:
- Statute of Limitations: The WTA extends the statute of limitations for actions to recover wages from two to six years.
- Rebuttable Presumptions:
- Records: If an employer fails to present sufficient records, as are required to be maintained under the Wage and Hours laws, the WTA creates a rebuttable presumption that the employee worked for the employer for the period of time and for the amount of wages alleged in the wage claim.
- Retaliation: The WTA creates a rebuttable presumption of retaliation if an employer takes an adverse action against an employee within 90 days of any conduct protected under the Wage and Hours laws.
- Successor Liability: The WTA also establishes a rebuttable presumption of successor liability in wage claims.
- Retaliation: A retaliatory action is taken against an employee by discharging or in any other manner discriminating against the employee, because the employee took a protected action.
- Penalty: Employer will be fined between $100 and $1,000 and will be liable for liquidated damages as outlined below
- Additional Remedy: An employer could be required to offer reinstatement to the discharged employee and take other actions as needed to correct the retaliatory action.
- Damages and Other Penalties:
- Civil Fines and Penalties: The following penalties for violations of the WTA can be imposed and will be applied to ongoing enforcement and administration costs for the Division of Wage and Hour Compliance:
- For First Offense: fine of $500, plus a penalty equal to 20% of the wages owed.
- For Subsequent Offenses: $1,000 plus a penalty of 20 percent of wages owed.
- Criminal Penalties: Any corporate officer or employee responsible for the wage payment violation commits a disorderly persons offense, with fines ranging from $500 to $10,000, and potential imprisonment of between 10 days and 18 months, depending on the number of violations.
- Liquidated Damages: If a violation is found, the employee is allowed to recover the wages owed plus liquidated damages in an additional amount equal to 200 percent of the unpaid wages, plus reasonable costs of the action and attorney’s fees.
- Miscellaneous Provisions:
- The law imposes joint and several liability on both an employer and a labor contractor providing workers to the employer.
- Employers are required to provide each current and newly hired employee a notice of employee rights under the State Wage and Hour Laws.
- Violations and names of violating employers will be made public on the NJDLWD’s website.
Interpreting the “ABC” test for determining independent contractor status has never been easy for New Jersey employers. The WTA now increases the risks and costs on businesses and their officers and directors for any mistakes in interpreting that test. By increasing the criminal penalties and fines New Jersey can impose and making it easier to file a claim for a violation, there has never been a more critical time than now for New Jersey employers to properly classify their workers.