New Jersey Continues Its Assult on Business

By a series of new laws that took effect in 2020, New Jersey continues to make itself less and less hospitable to business, especially small and medium-size business.

Effective July 19, 2020, New Jersey will have a new miniWARN Act.  The federal WARN Act and New Jersey’s present similar Act require certain employers to give advance notice to workers in the event of planned plant closings or mass layoffs. The New Jersey miniWARN Act that takes effect later this year expands the Employers covered, lowers the standards that require the giving of notice, and makes New Jersey the first state in the Nation to require employers to give severance payments to employees affected by certain plant closings, transfers or layoffs.

The current NJ WARN Act applies to Employers with 100 or more full-time employees who lay off 50 or more full-time employees during any continuous 30-day period.  It requires 60 days’ advance notice to the affected employees, and in the absence of the required notice, severance must be paid. 

The new law requires 90 days’ notice but also requires payment of one week’s severance for each year of employment regardless of whether timely notice is given. And there is no cap; an employee with 30 years’ service would have to be given 30 weeks’ severance even if timely notice is given.  If timely notice is not given, an additional four weeks’ severance must be paid as a penalty.  If two or more groups of less than 50 employees are laid off within 90 days of each other, all affected employees must be aggregated to determine if the 50-employee threshold has been reached. The reach of the new Act is expanded because, unlike the current law, the 100-employee threshold for the new Act’s applicability will be determined by counting both full-time and part-time employees. The new Act also expands the definition of “Employer” to include business owners and decision-makers, exposing them to personal liability if the notice requirements are not satisfied. 

Typically, when Employers give severance to employees, they obtain from the employee a release of any claims the employee might have against the Employer arising out of the employment relationship or the termination of that relationship, such as wage claims or claims based on workplace injuries or discrimination. Such releases likely will be ineffective in the case of layoffs subject to the new Act because the severance paid under the Act would not be something in addition to what they are entitled to under law and, for that reason, would not be deemed consideration for the release.

The misclassification of employees as independent contractors is common and has been the subject of federal and state interest for several years. Employers reap certain financial benefits by using independent contractors while workers misclassified as contractors lose the potential for overtime pay and benefits, and state and federal governments suffer wage tax loss.  New Jersey has turned up the heat on such misclassifications by a series of new laws.

For wage and other purposes, New Jersey has adopted a strict definition of an independent contractor.  A complete discussion of that is beyond the scope of this article. Suffice it for present purposes that, if the worker does not own his independent business, cannot suffer a profit or loss from his operation of that business and does not receive a majority of his income from sources other than the Employer under scrutiny, the worker will be considered an employee,  not an independent contractor.

One of the new laws increases fines on Employers for misclassification of workers. A first “offense” will result in a fine of $250 with additional “offenses” costing up to $1,000 per violation, and Employers will have to pay up to five percent of the misclassified worker’s gross earnings as a penalty. These are new fines and are in addition to existing taxes and penalties applicable to misclassification.  

A second law imposes joint and several liability on Employers and those who supply laborers where there has been a misclassification. This Act also imposes personal liability on owners, directors, officers, and managers for violations.

Yet another new law permits the New Jersey Department of Labor to issue a stop-work order anywhere it finds a violation of any New Jersey wage, benefit, or tax law, even if the determination is merely preliminary.   Only seven days’ notice to the Employer is required, and the Employer has only 72 hours to challenge the Order. It is not necessary for a stop-work order that the DOL find a misclassification.  A simple record-keeping violation is enough to issue a stop-work order and might be enough to prevent a successful challenge to one that has issued. The law authorizes DOL representatives to enter an Employer’s place of business during normal work hours without notice to examine books and records and speak with employees and imposes stiff daily penalties for refusing to permit such access or failure to comply with a stop-work order.

Two other new statutes permit the DOL and New Jersey Treasury Department to share tax information in conducting investigations of misclassifications which will aid in those investigations and permits the DOL to post on its website the name of any Employer it has found in violation of any state tax, wage or benefit law.  

Finally, beginning April 1, 2020, Employers will be obligated to post a yet to be created poster that will advise employees about misclassification, what the test is for proper classification as and independent contractor, and remedies if the worker thinks he or she has been misclassified.  This law also prohibits Employers from taking adverse action against any worker making any inquiry about improper classification and imposes punitive damages of up to twice any lost wages or benefits for doing so, in addition to any actual loss of wages and benefits.  

The takeaway from this new legislation is that Employers who classify workers as independent contractors without careful application of the tests that must be met for a worker to be properly so classified face economic costs that can vastly outweigh the perceived economic benefit of the misclassification.  A single stop-work order could place an Employer in breach of a contract with a customer that could result in large contract damages, not to mention the loss of future business with that customer.