NEW JERSEY AND YOU, PERFECT TOGETHER? NOT SO MUCH.
Slew of Bills Out of Trenton Impose Increasing Burdens on Those Doing Business in the State
It comes as no surprise that New Jersey has been a leader in legislative initiatives granting increasing employment rights to employees. Be it expanded leave rights, discrimination protections, job security, or wage and hour enforcement, these laws impose increasing burdens and liabilities on employers, especially small employers ill equipped to keep up with the dizzying pace of developments on the employment law front.
In recent weeks the Legislature was especially prolific, passing and introducing legislation on a wide array of employment law topics, some of which are highlighted below.
THE MISCLASSIFICATION PACKAGE: Under Governor Murphy’s administration, there have been considerable efforts aimed at stopping employers from misclassifying employees as independent contractors. According to the Governor’s Task Force on Employee Misclassification, improper classification of employees as independent contractors has increased by 40% in the last ten years, to the detriment of both workers and the State coffers. To combat these abuses, the Department of Labor has increased their audit activity of employer using independent contractors. On the legislative side, on January 14, 2020 the Governor signed the following five bills that significantly increase the risks facing employers who utilize independent contractors.
- A5840: Creating Joint and Several Liability for Unpaid Employer Taxes. “Client employers” and “labor contractors” who provide workers to those employers were already jointly and severally liable for violations of New Jersey wage and hour laws. However, this bill amends New Jersey’s wage and hour laws and tax laws to extend joint and several liability to employers and contractors for unpaid employer taxes (unemployment, temporary disability, worker’s compensation and gross income taxes) for misclassified employees. A “client employer” is defined as any business that obtains workers from a contractor to perform services “within its usual course of business.” A “labor contractor” includes any individual or entity that supplies such workers, except for a labor organization, apprenticeship program or hiring hall. The bill also creates individual liability for owners, directors, officers, managers or any other persona acting on behalf of the employer for both unpaid employer taxes and wage and hour violations, including misclassification provisions. The bill takes effect immediately.
- A5838: DOL Stop-Work Orders. Through this bill, the Commissioner of Labor is now empowered with the authority to issue a stop-work order requiring cessation of all business at any location where the Commissioner determines, after an initial determination or audit, that an employer is in violation of wage, benefit or tax laws. The Commissioner must give seven days advance notice of the stop-order, which becomes effective when served upon the business or served at the worksite where the violation occurred, which may not have any management personnel on site. This may be consequential, as the employer has only 72 hours upon receipt of the notice to appeal the stop-order to the Commissioner. The stop-order shall remain in effect until the Commissioner finds that the employer has come into compliance and paid all penalties, or determines, after a hearing, that the employer was not in violation. In addition, the stop-order shall apply to any successor entity engaged in the same business. Employers who violate stop-order may be assessed civil penalties of $5,000 for each day the order is violated.This bill may place an employer in a no-win situation – challenging the stop-order in administrative hearings can take months if not years, and continuing to operate during the hearings will result in staggering penalties over time. Moreover, if a stop order is not received by the employer because it was served at a worksite where no management was preset, the employer will unknowingly continue to operate, incurring the $5,000 daily fine and missing the 72-hour window to file an appeal. The only other recourse available to an employer is injunctive relief from the courts if the employer can show the stop-order was issued in error. The ability of the Commissioner to cease business operations is a devastating tool that will likely quickly bring employers to their knees, opting to pay any Department of Labor (“DOL”) assessments rather than challenge the DOL’s findings and face a crippling work stoppage. The bill takes effect immediately.
- A5843: Mandatory Posting and No-Retaliation. This bill requires conspicuous posting of a notice, in a form to be issued by the Commission explaining the prohibitions against misclassification of employees, including i) the standard applied by the DOL to determine misclassification, ii) the benefits available to employees under wage, benefit and tax laws, iii) the remedies available to victims of misclassification, and iii) information on how to file a complaint with the DOL.The bill further prohibits retaliation against any employee who inquires, complains or initiates a proceeding regarding misclassification. Employers who violate this provision are guilty of a disorderly persons offense and subject to fines. In addition, the employer will be required to offer reinstatement or other actions to correct the retaliatory action and pay reasonable legal costs plus punitive damages equal to two times lost wages and benefits. The bill takes effect April 1, 2020.
- S4228: Sharing of Tax Data Between the DOL and the DOT. This bill permits the DOL and the Department of Treasury to share any information, including tax information statements, reports, audit files, returns, or investigative reports to assist in any investigation into wage, benefit or tax law violations. Sharing of this information will greatly facilitate both the DOL’s and the IRS’ investigative efforts. The bill takes effect immediately.
- A5839: Enhanced Penalties for Violations. Under this bill, the Commissioner can impose a “misclassification penalty” of i) up to a maximum of $250 per misclassified employee for a first violation, and up to $1,000 per employee for each subsequent violation, AND ii) a penalty for the misclassified worker of up to 5% of the workers’ gross earning over the past 12 months. The employer may be required to make the employee payments to the Commissioner to be held in trust or directly to the employee. This bill takes effect immediately.
The power vested in the DOL through the Misclassification Package cannot be underestimated. New Jersey employers, already facing increased targeted investigations by the DOL to ferret out misclassification violations, now face devastating workforce shutdowns before being accorded an opportunity to challenge the DOL’s determination that workers were in fact misclassified, a process that may bankrupt an employer before it is concluded. Alternatively, the employer can capitulate to the DOL’s demands to continue operations or turn to the courts in the hopes of securing an injunction of the stop-order. The potential for individual liability of owners and managers, which would survive any closure of the business, is yet another prospect facing employers who use independent contractors who find themselves in the crosshairs of the DOL.
To make matters worse, a stalled bill introduced in the Senate (S863) aimed at codifying and tightening the ABC test used by the DOL to determine if a worker could be deemed an independent contractor will likely be introduced and gain momentum in the next legislative session. In in the current climate, it may well be headed for passage.
We have sounded this alarm repeatedly over the years, but now more than ever it is critical that employers take their heads out of the sand and conduct an honest assessment of all workers who are classified as 1099 independent contractors.