Background: Soon after being elected, New Jersey’s Governor created a task force to end misclassification of independent contractors, and the state’s Department of Labor and Workforce Development (DOL) began increasing audits and its scrutiny of contractors within the state. After the general election, the New Jersey Legislature attempted to pass several misclassification bills during the lame duck session. Several industries mounted efforts to combat S4204, a bill that attempted to modify and codify the test used to identify misclassification of independent contractors. The bill was withdrawn, and both independent contractors and employers celebrated a pyrrhic victory. The fight over the codification of the misclassification test appears to have distracted attention from other misclassification legislation that became law yesterday. Governor Phil Murphy signed five misclassification bills into law substantially increasing the liability for misclassifying independent contractors in New Jersey. This liability includes increased fines and penalties, the authority of the DOL to shut down businesses, and creation of joint, several and individual liability. On January 14, 2020, an identical version of S4204 was reintroduced as S863 with renewed vigor to codify the misclassification test the legislature previously withdrew.
Analysis: The five new laws signed by Governor Murphy, referred to as “The Misclassification Package,” are meant to address misclassification of independent contractors by greatly increasing the DOL’s ability to enforce wage/hour and tax laws. The new laws also broaden private rights of action under New Jersey’s wage and hours laws and add joint and personal liability for contractors’ violations of tax and benefit laws. Below is a brief summary of each new law.
Take Aways: Independent contracting in New Jersey is becoming incredibly risky. The DOL’s new powers can easily cripple an industry targeted for being in noncompliance. For example, assume the DOL decides that owner/operators within the trucking industry are routinely misclassified and targets this industry for investigation. The DOL could obtain all tax records from large motor carriers and, subsequently, their owner/operators from the treasury prior to beginning its audit. The DOL could then perform a cursory audit to confirm its assessment, which would include the enhanced penalties described above. If the employer objected to the assessment, the DOL could issue a stop work order. Should the company not respond to the notice within 72 hours, it would need to seek an injunction from a New Jersey court or request a hearing, risking fines, if it loses, that could put the employer out of business. Due to individual liability, the owners of the company would be liable for the assessment and fines, even if the company goes out of business. This is one simple illustration of the power of these new laws. It is strongly recommended that all companies review the 1099s issued in 2019, along with reoccurring payments from cash ledgers, and reevaluate those relationships in light of these new laws.