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Proposed New Jersey Legislation Moves Toward the Classification of Independent Contractors as Employees

A Senate bill, No. S4204, was introduced in early November 2019 to the New Jersey legislature that would classify thousands of New Jersey independent contractors, freelance and gig economy workers as employees1.

In New Jersey, independent contractors are not typically afforded the same rights as employees, such as wage and hour protections, paid sick leave and unemployment benefits. That has tempted many businesses to improperly misclassify their workers as independent contractors, a practice which the Murphy administration has begun cracking down on2. Senate Bill S4204 would not only codify the ABC test as used by New Jersey courts in the past, it would adopt a stricter version of the ABC test, thereby making it more difficult for companies to classify workers as independent contractors. Under the current version of the ABC test, an individual is considered an employee of the company he or she is working for unless:

A. The individual is free from control or direction over the performance of services;
B. The service is either outside the usual course of the business for which it is performed, or the service is performed outside of all the places of business of the enterprise for which it is performed; and
C. The individual is customarily engaged in an independently established trade, occupation, profession or business3.

If enacted, S4204 would eliminate the ability for companies to satisfy prong “B” by showing that the work performed by the individual is away from the company’s place of business. In other words, a company would now only be able to satisfy prong “B” by showing that the work performed by the individual is outside of the company’s usual core business. This modified prong “B” is potentially troublesome for any business that uses independent contractors to deliver or provide their core product or service. S4204 also adds a requirement to prong “C” that the individual must provide the company with the same type of services he or she provides in that profession or trade.

These proposed changes, if enacted, would make it significantly harder for companies to classify individuals as independent contractors. Given the number of employee-friendly laws passed by this legislature, there is a strong possibility that this bill will be passed by the New Jersey legislature4. This pending legislation could reach a floor vote before the end of the year5. However, late Friday, November 22, New Jersey Senate President Steve Sweeney announced proposed changes that would modify the classification under this Bill for freelance and so-called “gig economy workers6.

References:
1NJBiz Article by Daniel J. Munoz, November 11, 2019.
2NJBiz Article by Daniel J. Munoz, November 11, 2019.
3Sheppard, Mullin, Richter and Hampton LLP. Labor Employment Law Blog. Article by James R. Hays and Sean J. Kirby and Myles Moran on November 14, 2019 – Posted in Independent Contractors, New Jersey Legislative Update.
4Sheppard, Mullin, Richter and Hampton LLP. Labor Employment Law Blog. Article by James R. Hays and Sean J. Kirby and Myles Moran on November 14, 2019 – Posted in Independent Contractors, New Jersey Legislative Update.
5Washington Examiner Article by Ellie Bufkin, November 18, 2019.
6NJBiz Article by Daniel J. Munoz, November 25, 2019.

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