While New Jersey dodged one bullet regarding the use of independent contractors with the death of a bill that would have set up an ABC test similar to a new law in California (for now), the state’s governor has signed several other new laws that “create extreme risk for anyone utilizing independent contractors,” according to one labor attorney.
Soon after being elected, Gov. Phil Murphy (D) created a task force to address perceived misclassification of workers as independent contractors, and the state's Department of Labor and Workforce Development began increasing audits and its scrutiny of contractors within the state.
In a July 2019 report, the governor’s task force said that “despite the broad legal requirement to properly classify workers, misclassification is widespread and especially prevalent in construction, janitorial services, home care, transportation, trucking and delivery services.”
That report recommended a number of legislative fixes, and a package of bills was introduced to address the misclassification problem.
Stricter ABC Test Dead for Now
The most controversial among them was S-4204, and several industries, including trucking, fought it.
S-4204, much like California’s controversial Assembly Bill 5, sought to use a broad ABC test that would make it extremely difficult for companies to use independepent contractors.
The bill would have required that workers “shall be deemed employees, not independent contractors… unless and until it is shown to the satisfaction of the Commissioner of Labor and Workforce Development that:
A. The worker is free from control or direction over the performance of service;
B. The service is outside the usual course of business for which the service is performed, or the service is performed outside all the places of business of the enterprise for which the service is performed; and
C. The worker is customarily engaged in an independently established trade, occupation, profession or business.
The bill initially would have dropped the second half of the B prong after the word “or,” which would have made it nearly impossible for trucking to use independent contractors.
"Proponents of the bill state it is a codification of current law, but it’s not," Salvador Simao, with labor and employment law firm Ford & Harrison, told HDT. "The proposal adds and deletes language that impact how the law will be interpreted. Moreover, the legislation leaves key terms undefined that will need to be subsequently defined by the commissioner of labor. The commissioner has much less public oversight or accountability for regulations."
Trucking groups argued that the bill would severely reduce the size of the drayage fleet operating out of the Port of New York and New Jersey, with 77% of the approximately 9,000 or so active drayage drivers serving the port being owner-operators that might have a hard time proving they are not employees under the proposal.
Simao also pointed out in an email to HDT that with the stricter B-prong language, it would open up the potential for the law to be pre-empted by federal law. (Read about how trucking in California is fighting an ABC test in the courts on the basis of federal pre-emption.)
S-4204 was withdrawn (although it will raise its head again during the next legislative session), but “the fight over the codification of the misclassification test appears to have distracted attention from other misclassification legislation,” wrote Simao in an update from the New Jersey Motor Truck Association.
But Don’t Celebrate Yet
The five new laws signed by Gov. 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:
1. Stop Work Orders (A5838) - This new law gives the Commissioner of Labor the ability to issue a stop work order against any company the DOL determines is not in compliance with any wage, benefit or tax law. The law provides only 72 hours to appeal the stop work order, and employers who miss the 72-hour window and continue to operate until obtaining a final decision from the DOL now risk be fined millions of dollars even for minor violations. “This gives the DOL incredible leverage to force a company to concede to its findings and creates the potential for abuse,” Simao says.
2. Joint, Several and Individual Liability (A5840) - This new law amends New Jersey's wage/hour laws and tax laws, creating joint and several liability for “client employers” and “labor contractors.” The law defines Client Employers broadly to include any business entity that obtains workers either directly or indirectly from a contractor to perform labor or services within its usual course of business. The law also creates liability for any person acting on behalf of either the contractor or employer.
3. Additional Penalties (A5839) - This new law allows the Commissioner of Labor, upon a finding of misclassification under any state wage, benefit or tax law, to assess penalties in addition to those provided by the other statutes – $250 per misclassified employee for the first violation and a $1,000 per employee for each subsequent violation. In addition, the company is required to pay as much as 5% of the misclassified contractor's gross earnings as an additional penalty that will be paid to each misclassified contractor.
4. Retaliation Cause of Action & Posting (A5843) - This new law creates a private cause of action for discharge or discrimination against employees or contractors who inquire or complain about misclassification. The law also requires employers to post detailed notifications related to misclassification and requires the DOL to create a website dedicated to misclassification. Unlike the other laws in The Misclassification Package, this law does not take effect until April 1.
5. Sharing of Confidential Tax Information (S4228) - This bill allows the Department of Treasury to provide the DOL with tax information, audit files, returns, or any other information that would assist in investigating wage, benefit or tax law violations. “The DOL is now utilizing targeted industry investigations in conducting wage/hour and unemployment audits,” Simao explained. “The DOL's ability to obtain and review tax data that it can utilize in targeted investigations, buttressed by the ability to issue a stop work order, can quickly cripple an industry the DOL determines is out of compliance.”
It adds up to 'incredibly risky'
Taken all together, Simao said, “Independent contracting in New Jersey is becoming incredibly risky. The DOL's new powers can easily cripple an industry targeted for being in noncompliance.”
He offered this 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.”
The Teamsters union issued a statement expressing its support of the new laws.
“This is a tremendous step forward in protecting workers in New Jersey from misclassification,” said Fred Potter, Teamsters International Vice President and President of Teamsters Local 469 in Hazlet, New Jersey. “This legislation will not impact legitimate independent contractors, but it will serve to protect the thousands of workers who are harmed by the illegal practice of being misclassified by their employers as independent contractors when in fact they are employees. It’s critical that these groundbreaking laws be followed by enforcement to ensure New Jersey’s workers are protected.”