Lindabury, McCormick, Estabrook & Cooper, P.C. Firm News & Events
On April 3rd, 2025, the New Jersey Department of Labor and Workforce Development proposed new rules, which are designed to clarify the application of the “ABC test.” The ABC test is a legal standard used to determine whether a worker is an independent contractor or an employee for purposes of various New Jersey laws, including the Unemployment Compensation Law, the Wage Payment Law, and the Earned Sick Leave Law.
On May 5th, 2025, the proposed rules were published, triggering a 60-day review and comment period. This proposal is significant for businesses and independent contractors as it seeks to codify the department’s very broad application of the statutory ABC test.
Prongs of the ABC Test
- Prong A – Control: Prong A requires that a worker is free from control or direction in the performance of their work. Factors considered include whether the worker sets their own hours, uses their own tools, is free to work for other clients, and notably that the employer “has not reserved the right to control the … [worker’s] performance.”
- Prong B – Usual Course of Business: Prong B requires that the worker’s services are either outside the usual course of the employer’s business or performed outside of all the employer’s places of business. The proposal provides examples, such as a musician hired by a restaurant, which would typically be outside the usual course of business.
- Prong C – Independently Established Business: For Prong C, the worker must be engaged in an independently established trade, occupation, or business. This means the business must be viable and able to exist independently of the relationship with the employer. Factors include the number of clients and the worker’s investment in their business.
Potential Impact on Businesses
While these rules are intended to reduce confusion and provide clarification regarding worker classification, they will codify the DOL’s very broad and overarching interpretation of the ABC test. Thus, if formally enacted, these rules will complicate businesses’ ability to satisfy the ABC test and justify their worker classifications.
Considerations for Compliance
- Maintain Detailed Records: Employers must be prepared to meet their burden of proof and demonstrate compliance with all three prongs of the ABC test. This involves maintaining detailed records and documentation to support the classification of workers as independent contractors.
- Check Foundational Documents: Businesses should review their contracts with independent contractors to ensure they do not inadvertently suggest an employment relationship. The substance of the relationship, rather than the form, is critical under the ABC test.
- Awareness of Legal Precedents: The proposal heavily references New Jersey Supreme Court decisions. Understanding these cases can provide valuable insights into the application of the ABC test.
Conclusion
The proposed rules represent a significant effort by the DOL to expand application of the ABC test. Businesses and independent contractors should familiarize themselves with these changes to ensure compliance and avoid potential legal and financial repercussions. For further guidance, please consult with legal counsel.