“Independent Contractor” May be a Disappearing Classification for New Jersey Workers

Small business and contractors often hire independent contractors rather than employees for certain projects and services. Generally, this allows the business to avoid responsibility and expense related to withholding and paying taxes, and obtaining insurance for those workers. However, case law in New Jersey over the years has slowly been narrowing the definition of who may qualify as an independent contractor.

In 2015 for example, the New Jersey Supreme Court decided the case of Hargrove v. Sleepy’s LLC.  In that case, the Court found that, when defining a worker as an employee or independent contractor in relation to wage and hour or wage payment claims. The courts will consider the factors set forth in the “ABC” Test. The ABC test considers: (1) the control exercised by the employer of the worker’s work, (2) whether the services performed by the worker were outside the usual course of the employer’s business or performed outside the employer’s place of business, and (3) whether the individual worked in an independently-established business or occupation. So, in order to be an independent contractor, the worker had to be: (1) free from the employer’s control, (2) working away from the employer’s place or business OR working in an area outside the area of work generally conducted by the employer, AND (3) customarily engaged in his/her own established business or profession.

In November of 2019, a new bill was introduced in the New Jersey Senate proposing to limit the use of the independent contractor classification for workers even more. In relation to the second prong, workers could not qualify as independent contractors by physically working outside of the place of business of the employer; the worker would have to provide a service to the employer which is outside the usual course of the employer’s type of business.

One obvious concern here would be for tradesmen working as construction subcontractors in specific areas such as plumbing or electrical. Would they need to become employees? It seems that requiring such would require an entire shift in the way the construction industry has operated throughout modern history. However, it is unclear how the rule might be interpreted once faced with the complications that are sure to arise as a result of this bill. Indeed, this bill, if passed into law, would become one of the most, if not the most, stringent laws for independent contractor classification in the country.

Again, this bill is still being considered by the State Legislature. However, since it appears that it will likely pass in the future, it would be prudent for businesses to begin assessing now what changes they may need to institute in order to ensure compliance with this potential employment law going forward.

The attorneys at McLaughlin & Nardi are experienced with aiding New Jersey businesses in both employment  and tax matters. Our attorneys represent businesses in audits by the federal and New Jersey tax authorities and labor departments about the classification of employees, and in challenges to the classification of employees. Indeed, one of the firm’s partners is also a certified public accountant with extensive experience with and knowledge of tax law. To learn more about what we can do to help, please visit our website or contact one of our lawyers by e-mail or call (973) 890-0004.