N.J. Governor Makes Worker Misclassification a Priority

May 17, 2018

Lía Fiol-Matta, Esq., Ty Hyderally, Esq.

On May 3, 2018 New Jersey Governor Phil Murphy created a task force to address the problem of worker misclassification, another step towards greater protections and justice for New Jersey employees. The Employee Misclassification Task Force authorized by Executive Order No. 25 will review misclassification of workers as independent contractors and develop practices to improve enforcement of current laws that penalize employers that, intentionally or not, mistakenly classify workers as independent contractors instead of employees.

Workers performing certain jobs – such as drivers for transportation companies, temporary accountants preparing tax returns, freelancers in advertising campaigns, or construction workers, just to name a few –are often misclassified as independent contractors instead of employees, and with that, potentially lose numerous benefits and entitlements under state and federal laws. Categorizing employees as independent contractors is less costly to employers. Employers do not have to provide benefits such as unemployment compensation, family leave, paid vacations, healthcare insurance, disability insurance, and other benefits to independent contractors as they would to employees. In addition, employers do not have to pay unemployment, disability or social security taxes as well as workers’ compensation premiums for independent contractors. Independent contractors have increased hurdles in pursuing legal actions for discrimination and retaliation against companies they work for. While being an independent contractor has its advantages, being misclassified and not receiving required benefits and protections as an employee is unlawful and must be remedied.

New Jersey law assumes workers are employees, unless an employer can prove the existence of three conditions regarding the work involved – known as the “ABC Test” adopted by the New Jersey Supreme Court in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015). All elements of this strict test must be met for workers to be considered independent contractors under the New Jersey Wage and Hour Law (N.J.S.A. 34:11-56a et seq.) and the New Jersey Wage Payment Act, (N.J.S.A. 34:11-4.1, et seq.). These are:

1. The worker is free from control and direction over the performance of the work; and
2. The work is performed outside the usual course of the business or outside the company’s place of business; and
3. The worker is engaged in an independent, established trade, profession or business.

Federal laws under the US Department of Labor and the Internal Revenue Code also have tests to determine whether a worker is an employee or an independent contractor. In New Jersey, strict penalties are imposed under different laws on employers that misclassify workers. For instance, under the wage and hour laws mentioned above, in addition to damages and penalties, the employer may be required to pay back wages and overtime for hours worked in excess of 40 hours a week. Under the New Jersey Law Against Discrimination (N.J.S.A. 10:5-1 et seq.) and the Conscientious Employee Protection Act (N.J.S.A. 34:19-1 et seq.), employees have greater rights to sue for discrimination and retaliation, as these laws do not generally apply to independent contractors. Workers classified as employees and not independent contractors may also be eligible for benefits under the New Jersey Unemployment Compensation Law (N.J.S.A. 43:21-1-24), New Jersey Temporary Disability Benefits Law (N.J.S.A. 43:21-25 et seq.) and the New Jersey Family Leave Insurance Law (under the Temporary Disability Benefits Law). Workers misclassified as independent contractors can themselves face penalties as well, for writing off expenses as deductible business costs. If the misclassification is discovered, these individuals can face serious consequences for unpaid taxes.

New Jersey workers who have received a Form 1099 from their employer classifying them as independent contractors are advised to seek legal counsel to make sure they are not misclassified and losing wages, benefits and protections they are entitled to as employees.

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