New Jersey Gov. Phil Murphy recently signed several bills into law that will strengthen the state’s efforts to combat worker misclassification. Among the new enforcement tools, the laws authorize the New Jersey Commissioner of Labor and Workforce Development (Commissioner) to impose financial penalties and issue stop-work orders to employers who misclassify workers.
Efforts to Crack Down on Worker Misclassification
Worker misclassification occurs when a bona fide, common law employee is classified to be an “independent contractor.” In some cases, employers intentionally misclassify workers to avoid tax withholding, overtime pay, and insurance requirements, such as Workers Compensation and Unemployment Insurance. However, misclassification can also occur simply because the employer fails to properly understand and apply the law. Under New Jersey law, a worker is an employee unless the employer can demonstrate all three prongs of the ABC test:
- Such individual has been and will continue to be free from control or direction of the performance of such service, but under his or her contract of service and in fact; and
- Such service is either outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
- Such individual is customarily engaged in an independently established trade, occupation, profession or business.
As discussed in prior articles, the Murphy Administration has prioritized efforts to crack down on employers misclassifying workers as independent contractors. In 2018, Gov. Murphy signed an executive order establishing a task force on worker misclassification. Last year, the Task Force issued its first report, which concluded that 12,315 workers were misclassified, more than $462 million in wages were underreported, and more than $13 million in contributions (unemployment, disability, family leave insurance, and workforce) were underreported. The Task Force also issued a series of recommendations, which included legislative action.
New Worker Misclassification Laws
In January, Gov. Murphy signed six bills into law aimed at curbing worker misclassification. Below is a brief summary of the new laws:
- Posting Requirements: Assembly Bill 5843 requires employers to post notices for employees regarding worker misclassification. Specifically, employers are required to “conspicuously” post notification, in a place or places accessible to all employees in each of the employer's workplaces, in a form issued by the Commissioner, explaining: 1. The prohibition against employers misclassifying employees; 2. The standard that is applied by the department to determine whether one is an employee or an independent contractor; 3. The benefits and protections to which an employee is entitled under State wage, benefit and tax laws; 4. The remedies under New Jersey law to which workers affected by misclassification may be entitled; and 5. Information on how a worker or a worker's authorized representative may contact, by telephone, mail and e-mail, a representative of the commissioner to provide information to, or file a complaint with, the representative regarding possible worker misclassification. The law also prohibits an employer from discharging or in any other manner discriminating against an employee because the employee raises allegations of worker misclassification with the employer or the New Jersey Department of Labor and Workforce Development (NJDOL). The law takes effect on April 1, 2020.
- Financial Penalties: Assembly Bill 5839 authorized the assessment of penalties for violations of State wage, benefit and tax laws in connection with the misclassification of employees. The Commissioner is specifically authorized to assess and collect: 1. An administrative “misclassification penalty” up to a maximum of $250 per misclassified employee for a first violation and up to a maximum of $1,000 per misclassified employee for each subsequent violation; and 2. A penalty to be provided for the misclassified worker of not more than five percent of the worker’s gross earnings over the past 12 months from the employer who failed to properly classify them. The law took effect immediately.
- Stop-Work Orders: Assembly Bill 5838 permits the Commissioner to issue a stop-work order against any employer deemed to be in violation of any State wage, benefit and tax law. A stop-work order issued under the new law requires the cessation of all business operations at every site where the violation occurs, and must remain in effect until the Commissioner issues an order finding that the employer has agreed to pay the required wages and has paid any wages or penalty owed. The Commissioner must serve a notification of intent to issue a stop-work order on the employer at least seven days prior to the issuance of a stop-work order. As a condition of release from a stop-work order, the Commissioner may require the employer to file periodic reports with the NJDOL for a probationary period of up to two years. The Commissioner may assess a civil penalty of $5,000 per day against an employer for each day that it conducts business operations in violation of the stop-work order. In addition, AB 5838 gives the Commissioner authority, when investigating potential violations, to enter workplaces and inspect records. An employer who fails to provide access to the workplace or records, or otherwise hinders an investigation, faces fines of at least $1,000 per day. The law took effect upon signing.
- Joint Liability: Assembly Bill 5840 makes any employer and any labor contractor providing workers to the employer subject to joint and several liabilities for any violations of the provisions of New Jersey’s employer tax laws, including provisions of those laws concerning the misclassification of workers. The new law also provides that any person acting on behalf of an employer, including a client employer or labor contractor, who violates any provision of those laws, or State wage and hour laws, may be held liable, as the employer, for the violation. The law took effect immediately.
- Publicly Naming Violators: Assembly Bill 4226 permits the NJDOL to publicly post on its website the name for any person who is found to be violation of any State wage, benefit, or tax law, and against whom a final order has been issued by the Commissioner or other appropriate agency head for any violation of State wage, benefit and tax laws. The NJDOL is required to provide notice to the person 15 business days prior to the posting. A person who receives a notice of intent to be placed on the list is entitled to the right to request a hearing within 20 days. AB 4226 provides several considerations the NJDOL must take into account in determining when to place an individual on this list. The law took effect upon signing.
- Tax Information Sharing: Assembly Bill 4228 permits the Department of Treasury’s Division of Taxation to share with the NJDOL any information, including, but not limited to, tax information statements, reports, audit files, returns, or reports of any investigation. The new law is now in effect.
Given the increased scrutiny and enhanced penalties for violations, New Jersey businesses that use independent contractors should verify that these workers are not actually employees. Mistakes, no matter how inadvertent, could lead to costly employments lawsuits and legal penalties.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Sarah Tornetta, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.