Employers with New Jersey Employees Beware

By: Robert W. Small

If you are an Employer with New Jersey workers you will want  to be sure you have properly classified any worker you are treating as an independent contractor rather than as an employee. The cost of misclassification can be enormous under both New Jersey and federal wage laws, and the risk of misclassification being detected has just become greater in New Jersey. All it takes is one disgruntled “employee.”

Several tests exist for determining if a worker is an employee or independent contractor depending on the purpose for which the determination is being made. When it is for wage and hour purposes, New Jersey follows what is known as the “ABC” test. [See Hargrove v. Sleepy’s LLC , 106 A. 3rd 409 (N.J., 2015)]  

The ABC test presumes an individual is an employee unless the employer can demonstrate:
  1. that the worker has been and will continue to be free from control or direction over the performance of the work, both under any contract and in fact; and
  2. that the work performed is either outside the usual course of the Employer’s business, or that the work is performed outside of all the places of business of the Employer for which such service is performed; and
  3. that the worker is customarily engaged in an independently established trade, occupation, profession or business.
Note that the legal presumption is that a worker is an employee unless all three of these tests are met and that the Employer has the burden of proof.

New Jersey Employers are at an increased risk for detection of misclassification because New Jersey recently signed a Memorandum of Cooperation with the federal Department of Labor to join forces in detecting misclassification. This follows Governor Murphy’s issuing an Executive Order establishing a cross-agency task force to deal with misclassification, which suggests an increase in classification auditing.  

New Jersey has the most progressive equal pay law in the Nation, including a recently enacted paid leave statute that will go into effect October 29th of this year. Failure to properly classify employees can lead to improper withholding under both federal and state tax laws, not paying required minimum wage and overtime, and, not properly according paid leave and other employee benefits to employees; all of which have stiff penalties including potential personal liability of owners and executives and, in some cases, criminal exposure.  

If you have any questions, or would like additional information, please contact Bob Small, Partner in Reger Rizzo & Darnall’s Employment Practices Group,  at 215.495.6541, or via email at rsmall@regerlaw.com.

This newsletter is designed to keep you up-to-date with changes in the law. For help with these or any other legal issues, please contact Reger Rizzo & Darnall LLP.  The content of this newsletter is intended solely for your informational purposes. It does not constitute legal advice, and it should not be relied on without a discussion of your specific situation with an attorney.