Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Already a tough place for employers, New Jersey may be about to get even tougher. The Garden State is one of only a handful of states widely using the so-called ABC test, which makes it harder for businesses to classify workers as independent contractors. State legislators now want to make it even more difficult to satisfy the ABC test with a new bill, SB 4204.
The ABC test is named after its three “prongs.” It states that a person providing services for compensation is an employee unless the business receiving the services can prove three things:
- the person has been and will be continue to be free from control or direction over the service’s performance, both under the parties’ contract and in fact;
- the service is either outside the course of the company’s usual course of business, or the service is performed outside of all the places of business of the employer for which the service is performed; and
- the person is customarily engaged in an independently established trade, occupation, profession, or business.
Like many states, New Jersey already uses the ABC test for unemployment purposes. But unlike most states, it also uses the ABC test under its wage and hour laws. The New Jersey Department of Labor adopted the ABC test for the state’s Wage and Hour Law in the 1990s,1 and the New Jersey Supreme Court extended the test to the state’s Wage Payment Law in 2015. New Jersey also uses the test in a few other contexts, such as for certain purposes in the construction industry.2
Though SB 4204 would keep the ABC test in all these contexts, it would do more than simply codify existing practice. Instead, it would adopt a new, stricter form of the test, which would make it even more challenging for businesses to use independent contractors. It would do that in two ways:
First, SB 4204 would narrow the “B” prong by eliminating one of the options available to companies. Today, a company can satisfy the B prong by showing either that a person works away from the company’s primary place of business or that the person works outside the company’s usual course of business. The bill eliminates the first option, leaving only the second. So if a company could not show that the person works outside its usual course of business, it would need to classify the person as an employee.
Second, the bill would tighten the “C” prong by requiring companies to show that the person works in an independent trade, occupation, or profession “of the same nature as that involved in the work performed.” In other words, the person not only has to work in an independent profession or trade; the person must also provide the business with the same type of services he or she provides in that profession or trade.
Notably, these changes conform to California’s recently passed AB 5. AB 5 has been the subject of much press coverage and is widely expected to upset labor practices across a variety of industries. While SB 4204 hasn’t yet received the same attention, its effects could be similar.
With an all-Democratic legislature and executive branch, SB 4204 has a non-frivolous chance of seeing its way into the statute books. New Jersey companies should monitor the bill’s progress and, if so inclined, contact their state legislators.
1 See N.J. Admin. Code § 12:56–16.1.
2 See Construction Industry Independent Contractor Act, Pub. L. 2007, c.114 (C. 34:20-4).