Scarinci Hollenbeck, LLC
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201-896-4100 info@sh-law.comFirm Insights
Author: Scarinci Hollenbeck, LLC
Date: August 7, 2019
The Firm
201-896-4100 info@sh-law.comGov. Phil Murphy has no plans to abandon his crackdown on worker misclassification. Following the release of a report by the Task Force on Employee Misclassification, the Governor vowed to intensify his efforts. New Jersey employers who rely on independent contractors should be prepared for even more intense scrutiny.
As we have discussed in prior articles, 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:
Last year, Gov. Murphy signed an executive order establishing a task force on worker misclassification. It was charged with a number of responsibilities to combat employee misclassification, including:
On July 9, 2019, the Task Force issued its first report. The report states that a 2018 audit by the New Jersey Department of Labor (NJDOL) found 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. Based on the prevalence of misclassification, the Task Force issued the following recommendations:
The Worker Misclassification Task Force also voiced support for legislative action, including bills that:
In a press statement accompanying the release of the report, Gov. Murphy noted that his administration has already acted on eight of the task force’s 16 recommendations. “Employee misclassification hurts hardworking New Jersey workers and prevents them from receiving the benefits and the pay they worked for and deserve,” said Governor Murphy. “We know that we cannot build a stronger and fairer economy without strong worker protections. Our Administration has made cracking down on misclassification a top priority, and we will continue to root out contractors who exploit and cheat workers.”
Gov. Murphy also recently signed a bill, Senate Bill 2557, that authorizes the NJDOL to issue stop-work orders whenever an initial worksite investigation finds sufficient wage law violations. The new law provides that when a stop-work order issued, it requires the cessation of all business operations at every site where the violation occurs. In addition, it will remain in effect until the Commissioner issues an order releasing the stop-work order upon a finding that the employer has agreed to pay the required wages and has paid any wages or penalty owed. As a condition of release from a stop-work order, the Commissioner may require the employer to file with the department periodic reports for a probationary period of up to two years. The Commissioner may also assess a civil penalty of $5,000 per day against an employer for each day that it conducts business operations that are in violation of the stop-work order.
The new law also authorizes the Commissioner, upon receipt of any complaint or through a routine wage/hour investigation, to enter, during usual business hours, the place of business or employment of any employer of the individual to determine compliance with the wage and hour laws or other laws, as appropriate. The Commissioner may examine payroll and other records and interview employees, call hearings, administer oaths, take testimony under oath and take depositions.
An employer who is subject to a stop-work order has the right to appeal to the Commissioner. Within seven business days of receipt of the notification from the contractor, the Director of the Division of Wage and Hour Compliance (Director) must hold a hearing to allow the contractor to contest the issuance of a stop-work order, at which the contractor must be allowed to present evidence. If the Director fails to hold a hearing within seven business days of receipt of the notification from the contractor, an administrative law judge is authorized to release the stop-work order.
The Director must issue a written decision within five business days of the hearing either upholding or reversing the contractor’s stop-work order. The decision must include the grounds for upholding or reversing the contractor’s stop-work order. If the contractor disagrees with the written decision, the contractor may appeal the decision to the Commissioner, in accordance with the Administrative Procedure Act.
Unfortunately, even innocent misclassification mistakes can result in significant legal penalties. To avoid getting swept up in the forthcoming enforcement blitz, we encourage all New Jersey employers to re-verify that all of their workers are properly classified. If you need assistance, we encourage you to contact one of Scarinci Hollenbeck’s experienced employment attorneys.
If you have any questions or if you would like to discuss the matter further, please contact me, Scott Heck, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.
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