The New Jersey Department of Labor and Workforce Development’s proposed regulations on a test to determine worker classification as an employee or an independent contractor have drawn interest within the legal community and beyond.
The proposals, which seek to codify the department’s interpretation of the so-called ABC Test, drew hours of testimony debating the efficacy of the regulations. The hearing was held late last month and led to an extension for the time to comment on the proposed regulations. The New Jersey State Bar Association opposes the regulations and will be submitting comments before the Aug. 6 deadline in line with its previous testimony on legislation seeking to codify the ABC Test.
The department proposes the regulations to provide guidance to employers and independent contractors based on case law, said Executive Director David Fish. He began the hearing with an overview of the case law driving the proposed regulations, which emanate from the New Jersey’s Supreme Court decisions in Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991) and East Bay Drywall, LLC v. Department of Labor and Workforce Development, 251 N.J. 477 (2022), along with final administrative decisions that Fish said published and unpublished decisions have affirmed.
The hearing, which lasted more than three hours, drew testimony from all sides of the debate. Opponents of the proposed regulations called the proposal confusing and overbroad. The New Jersey Chamber of Commerce said the test was not a codification of case law, but rather an overbroad interpretation of case law that would essentially abolish independent contractors because of the uncertainty the test would cause.
Testimony echoed the same arguments made in 2019 when S4204 (Sweeney)/A5936 (Egan) was proposed to modify the ABC Test. NJSBA President Christine A. Amalfe, then a member of the Board of Trustees, raised concerns that the bill – which also attempted to codify certain state Supreme Court rulings – would significantly impact solo and small-firm attorneys who retain per diem attorneys and temporary support staff such as paralegals as a flexible option to support their practice. Similar to the concerns raised at the hearing, the NJSBA expressed concerns that the department’s overbroad definition of employee could unintentionally and unnecessarily sweep in professionals who were never intended to be employees in this context.
Amalfe testified in 2019 that many law firms are solo or small firms, which experience ebbs and flows. “Solo and small firms manage those ebbs and flows by using the resources of individuals who are seeking to practice law, or who seek to provide paralegal services, on an as-needed basis,” Amalfe said. “Many of these workers are women who have chosen to spend time raising children or older workers who have chosen to work on a reduced schedule, often because of health issues or elder responsibilities.”
Proponents of the proposed regulations pointed out the lack of protections enumerated in the rules for employees who are misclassified as independent contractors, including wage theft and unsafe work conditions. Calling it a pressing issue in the construction industry, a representative from Associated Construction Contractors of New Jersey testified about bad actors who misclassify employees to avoid taxes, unemployment compensation and fair wages.
A representative from Workplace Justice Lab, a research and advocacy group focused on workers’ rights and economic inequality, said the proposed regulations provide a clear three-prong standard that avoids ambiguity and is easier to apply and understand than the multifactor test employed by the IRS. Make the Road New Jersey, a group that represents immigrants, expressed concerns about worker exploitation of the immigrant population who may not speak up about abusive employer practices.
A majority of those testifying in opposition to the proposed regulations included associations and representatives of gig workers, financial advisers, insurance agents, truckers, and small businesses. John Holub, speaking on behalf of the New Jersey Retail Merchants Association, testified that the proposed regulations significantly narrow the definition of independent contractors and could sweep into employee status direct sellers such as Mary Kay, Avon, and Pampered Chef, all of whom are nearly universally defined as independent contractors. “The test makes it difficult, if not impossible, for independent contractors to operate in New Jersey and will have a significant impact on New Jersey’s economy,” Holub said.
AAA testified that the proposed regulations could jeopardize public safety because it would prohibit the popular roadside assistance provider from engaging towers in New Jersey. The company relies on a network of local, independently owned and operated companies to provide such services, said the AAA representative. Similar testimony on behalf of truckers was offered to point out that the state – itself – relies upon independent contractors to provide snow removal.
The largest contingent of those testifying represent gig workers and app-based workers who engage in delivery or driving services to supplement full time income. Touting the flexibility of the work hours, the ability to work in less than one hour increments and the large number of minority and senior workers who engage in such work, representatives on behalf of gig workers testified that the ABC Test would not just devastate these workers, but also New Jersey’s economy, which relies on such services for convenience and necessary services to underserved populations such as seniors and those without transportation.
The NJSBA anticipates submitting comments on the proposed regulations. A full copy of the proposed regulations may be found here.