New Jersey has not learned from California’s lesson on how to destroy flexible work, self-employment, and side gigs.
Instead, Garden State labor officials are doubling down on the Golden State’s independent contractor crackdown.
Recently, the New Jersey Department of Labor and Workforce Development (NJDOL) filed a notice of proposal for new rules to codify its interpretation of the ABC test to determine independent contractor (IC) status. This is the same three-pronged test California implemented to determine whether a worker should be classified as an independent contractor or an employee for purposes of wages, taxes, overtime, unemployment insurance, and other mandates.
New Jersey claims to be combating worker misclassification. However, changing the definition is a way to force hundreds of thousands–perhaps as many as 1.7 million–New Jersey freelancers, entrepreneurs, and gig workers to abandon self-employment. A company that contracts ICs would be forced to hire them, even if those companies cannot afford it, and against the will of independent contractors.
This proposal comes five years after the New Jersey legislature attempted and failed to codify the ABC test. A controversial bill in 2019–the same year that California passed AB5——failed to pass after loud public outcry from industries and independent contractors themselves.
What policymakers could not enact through the law, they’re now seeking to advance through regulation.
After California passed its flexibility-killing legislation, millions of people lost contracts, jobs, and livelihoods. The economic impact was damaging.
Now, New Jersey is recklessly seeking to import that hardship to its workforce.
About the Proposed Regulations
Under the ABC test the following three factors generally must be satisfied to prove independent contractor status:
- The individual is free from control or direction over the performance of the work;
- The work is performed outside the usual course of business or outside the business’s physical location; and
- The individual is engaged in an independently established trade, occupation, profession, or business.
New Jersey is proposing to interpret those three factors in the following ways. The hiring entity must prove that:
- It does not exercise control over a worker, and also does not retain the right to control the manner or means of the work.
Nine factors and others are considered in determining whether the worker is “free from control or direction:
– Who sets the hours of work.
– Whether the hiring entitiy controls the “details and means of employment,” such as requiring specific tools or supplies, uniforms, digital applications, or software.
– Whether the services must be rendered personally by the individual.
– Whether the services are negotiated for.
– Whether the individual’s rate of pay is fixed by the hiring entity.
– Whether the individual bears any risk of loss.
– Whether the individual is required to be on call or otherwise available at set times to perform services.
– Whether the hiring entity limits the individual’s ability to perform work for other parties.
– Whether the individual is provided training by the hiring entity. - The worker’s services are not part of the company’s typical business activities, or if the work occurs at a location unrelated to the business. For example: A law firm hiring a landscaper, a dentist hiring a cleaning service, and a restaurant hiring a band for live music.
However, examples that would likely not satisfy this prong include: A ride-share company hiring drivers, a drywall company hiring a drywall installer; and a country club hiring golf caddies. - The worker is independently engaged in a trade or business based on the following factors:
– Duration, strength, and viability of the individual’s business.
– The number of customers the individual has.
– The amount of remuneration the individual receives from the putative employer compared to others.
– The number of employees in the individual’s business.
– The individual’s investment in their tools.
– Whether the individual sets their own rate of pay.
– Whether the individual advertises, maintains a visible business location and is available to work in the market.
Imagine being an event planner or a musician trying to figure out whether, based on all of these factors, she would be classified as an independent contractor or an employee. This interpretation is far from clear.
Labor Commissioner Robert Asaro-Angelo thinks otherwise, claiming in a statement:
This rule proposal is a critical step in providing clear, reliable guidance to employers to help them comply with the law and prevent the illegal misclassification of employees. Not only would these new rules protect workers’ rights, but they would also ensure that bona fide independent contractors understand what makes them independent contractors, rather than employees, so that they can continue to operate with autonomy.
What’s clear is that the new interpretation of the ABC test is more restrictive. The intended outcome is to reduce the number of independent workers.
Furthermore, the commissioner is insinuating that not all independent contractors are bona fide. This is a common critique from the left, which assumes that self-employment, gig work, and freelancing are not “good” jobs.
Who determines what jobs are “good”? It should not be the government. In a free society, each worker should define what makes an opportunity “good” based on their priorities, values, aspirations, or unique circumstances. For many, a paycheck with benefits is good. Conversely, for many independent contractors, flexibility to work around other priorities such as caregiving and health issues or the ability to work for oneself are good–even great.
Analysis
Legal analysts view this regulation as an existential threat to independent contracting statewide.
Toutman Pepper Locke analysts explained just how much of a departure Prong A is from other similar standards:
The proposed regulation pertaining to Prong A departs in a dramatic manner from virtually every other test for IC status under federal law and the laws in every state.
He ominously added that
unless clarified in the final version of the regulation, would not merely tilt the balance in favor of employee status and against legitimate ICs but rather lead to the elimination of all ICs in New Jersey.
As pertains to Prong B, Kelly L. McNaughton and Adam Busler at Fox Rothschild point to how many worksites would not pass muster:
Perhaps more importantly, the proposed regulations also provide examples of what is likely to be deemed not outside the putative employer’s usual scope of business. These examples include: a transportation network company (e.g., Uber or Lyft) engaging a driver to transport customers, a drywall installation company engaging a drywall installer and a country club engaging a golf caddie to work on its golf course.
The DOL proposed further provide examples of what will be considered a location where an “integral part” of an employer’s business is conducted, and it could include a private residence where installation work or remote work of any kind is occurring, or a truck, airplane or vehicle for transportation companies. The examples given in the proposed regulation far exceed what employers would generally consider their place of business.
The Economic Impact
The focus of New Jersey’s labor officials is not to expand the workforce but to shuffle workers around. They risk eliminating flexible positions and decimating self-employment in the state with possibly no real gains in traditional employment.
We know from economic analysis by Liya Palagashvili of the Mercatus Center that California’s failed AB5 not only decimated self-employment and overall employment, but self-employed workers did not seamlessly shift into regular employment.
As Fight for Freelancers founder, Kim Kavin, noted in her recent Freelance Busting Substack post,
New Jersey companies cannot, and will not, create traditional jobs for 1.7 million independent contractors. Throughout the past decade, the entire U.S. economy has typically added 1.9 million jobs per year.
…
Here’s the “jobs impact” section—in its entirety—from the New Jersey Labor Department’s proposed rule: The proposed new rules would have no impact on either the generation or loss of jobs.
That 16-word sentence is an admission that what independent contractors have been saying all these years is true. New Jersey officials are acknowledging, point-blank, that there will be no new jobs created for all the independent contractors who are about to have their business relationships, incomes and careers wiped out.
Next Steps
The 60-day commenting period on the regulation has been extended until August 6, 2025.
We hope that just as New Jersey citizens stopped the copycat California bill in 2019, their voices can stop this regulatory attack on worker freedom.