New Jersey Department of Labor Publishes Final ABC Rule

After more than a year’s delay, the New Jersey Department of Labor announced a final rule implementing the state’s “ABC” test. The ABC test is used to determine a worker's status as either an employee or as an independent contractor under multiple laws, including New Jersey’s wage-and-hour laws. After the Department first proposed the rule last year, it received hundreds of comments expressing concern about the rule’s breadth. In response, the final rule scales back many of the proposed rule’s most controversial features, including “examples” that would have singled out companies in certain industries. The final rule also takes a softer approach to issues like legal compliance. Whereas the proposed rule would have treated precautions a business takes to comply with other laws as evidence of the business's “control” over the worker, the final rule takes the opposite approach: legal compliance is not evidence of control. 

In all, the final rule is narrower than the original proposal. It responds to vigorous criticism by the business community by removing many of the proposal’s most concerning features. And while it is by no means simple, it takes a lighter approach than many had feared. 

What Was Proposed?

In April 2025, the Department proposed rules to implement the state’s “ABC test.” The ABC distinguishes between employees and independent contractors. It would have been stricter (and more likely to cause a worker to be deemed to be an employee) than many other common classification tests, such as the “common law” test or the “economic realities” test. Unlike those tests, the ABC requires a worker to meet all of three specific criteria: to be an independent contractor, the worker must (a) be free from control both under the contract and in fact; (b) work outside a company’s usual course of business or all the company’s places of business; and (c) work in an independently established business, profession, or trade. If workers fail any one of those criteria, they are deemed employees. 

The ABC test is often used in state unemployment statutes: more than 20 states use it to decide whether a worker is eligible for unemployment compensation. But it is rarer in other contexts. In contrast, only a handful of states use it to determine whether a worker is eligible for overtime or minimum wages. States more often use a more flexible test, such as the common-law test or the multi-factor “economic realities” test.

In New Jersey, the test is used for multiple purposes. It appears not only in the state’s unemployment-compensation laws, but also in its wage-and-hour and wage-payment rules. So rules implementing the test have a broader effect in New Jersey than they would in most states. 

The proposed rule would have made New Jersey’s version of the test one of the strictest in the country. It took an especially hard line against certain industries, including the construction and app-based services industries. But in response to negative feedback from the business community, the final rule significantly scales back the proposal’s most controversial elements. 

What Was Removed?

The final rule removes many controversial sections:

• Examples. The proposed rule listed examples of workers who provide work within the usual course of a company’s business. These examples included rideshare drivers who use a transportation network company’s app, drywall installers who work at a drywall-installation company’s worksites, and caddies who work at a country club. The proposed rule also includes examples of workers who work within a company’s usual places of business. These examples included delivery drivers who deliver goods through a delivery network company’s app using their own cars. (The proposed rule treated the car as a place of the company’s business.) All of these examples have been removed. 
• Applications as control. The proposed rule would have treated software, including smartphone applications, as a form of control. It stated that if a business required a worker to use its software or applications, the business was controlling the worker. The final rule deletes this language.
• Actual work vs. right to work. The proposed rule would have minimized the right to work for other clients. It stated that the relevant question is not whether a worker has a right to work for others. Rather, the question is whether the worker actually works for others and is paid for that work. The final rule deletes that section.
• Definition of off-site work. The proposed rule would have differentiated between off-site work that is “essential” to a company’s business and work that is only “ancillary” to the business. It would have treated “essential” work as performed at the employer’s usual places of business, even when performed off site. This distinction has been removed. 
• Legal compliance. The proposed rule would have discounted the importance of legal compliance. It stated that when a business controls a worker, the control is evidence of employment even when the business must control that aspect of the work to comply with some other law. The final rule eliminates that language. 

What Was Added?

The final rule also adds a handful of less-controversial sections:

• Examples of exclusions. The final rule states that it does not affect any exclusion set out in a statute. It then lists several examples of these exclusions, including exclusions from minimum-wage and overtime requirements for “white collar” professionals. The rule clarifies that these exclusions continue to work in the same way as they did before the rule. 
• Work from home. The final rule clarifies how the Department approaches remote work. It explains that when a person works from home, the person’s home is not automatically part of the company’s usual places of business. So remote workers do not automatically become employees just because they work from their homes rather than an independent office.
• Legal compliance. The final rule also takes a new approach to legal compliance. It states explicitly that steps a business takes to comply with federal, state, or local law is not “control” under the ABC test. In other words, it reverses the proposed rule’s approach.   

What Is Left?

While these changes are important, much of the proposed rule remains intact. The final rule still sets out the Department’s general approach to the ABC test. It still puts the burden on a business to prove that a worker meets all three criteria. It also still lists certain facts that are relevant under each criterion, such as whether workers control their own schedule or set their own pay rate. And the final rule still says that some facts are not enough on their own to avoid a worker being deemed to be an employee. These facts include whether the worker has an independent-contractor agreement, whether the worker uses a business entity, whether the worker earns a low salary, and whether the worker has multiple jobs.

The final rule hardly makes New Jersey an independent-contracting haven. But it does step back from the aggressive approach taken in the proposed rule. On balance, it is positive news for businesses that work with independent suppliers and service providers in New Jersey.