By Salvador Simao and David S. Kim
New Jersey’s crackdown on the misclassification of independent contractors and gig economy workers continues with six bills increasing investigative and enforcement powers.
Soon after being elected, New Jersey’s Governor created a task force to end misclassification of independent contractors, and the state’s Department of Labor and Workforce Development (DOL) began increasing audits and its scrutiny of contractors within the state. In addition, the state has passed new employment laws intended to limit the use of independent contractors. The Senate recently passed two bills that are anticipated to become law within a few months.
As discussed previously in more detail here and here, one bill creates a fund that will provide contractors with benefits and another bill creates a presumption that contractors are employees unless the Commissioner of Labor finds that companies can meet a revised and more difficult ABC test. Most recently, the Assembly passed a package of six bills that make the use of contractors in New Jersey even more risky. The Assembly bills are expected to become law in some form in the near future.
It is no coincidence that this concerted effort to limit or end independent contracting is occurring during a lame-duck session (the session after the elections on 5 November 2019, but before the newly elected Legislature takes office). Many New Jersey industry groups suspect this effort is part of a strategy to ensure New Jersey begins 2020 as the state with the most restrictive laws relating to independent contracting. Once the Governor signs the bills (which we anticipate will all take place at the same time) they will take effect immediately. Therefore, it is imperative that companies operating in New Jersey understand what is being proposed and assess whether they are able to comply with the proposed legislation.
The recent Assembly bills (referred to as ‘The Assembly Misclassification Package’) supplement the Senate bills discussed above. Where the Senate bills address the standard for misclassification, the Assembly bills address additional penalties for violations and who is liable, and increase the DOL’s authority to investigate misclassification issues.
Stop work orders (A5838)
This bill authorises the Commissioner of Labor to issue a ‘stop work order’ against any company that is determined to be in violation of any wage, benefit or tax law. This order requires the cessation of all business operations at any site where the Commissioner finds a violation. The order may be lifted if the Commissioner finds the company paid all wages and penalties owed. Companies may be placed on probation for up to two years, during which time they must file periodic reports. For each day that a company fails to comply with the stop work order, it may be assessed a fine of USD 5,000.
Additional penalties (A5839)
This bill allows the Commissioner, upon a finding of misclassification under any state wage, benefit or tax law, to assess penalties in addition to those provided by other statutes. In such circumstances, the Commissioner may impose a penalty of USD 250 per misclassified employee for the first violation and a USD 1,000 per employee penalty for each subsequent violation. The company will also be assessed not more than 5% of the misclassified contractor’s gross earnings as an additional penalty to be paid to the contractor.
Joint, several and individual liability (A5840)
This bill amends New Jersey’s tax laws (which include the unemployment law, temporary disability law, workers’ compensation law and gross income tax law) creating joint and several liability for companies for misclassification issues created by subcontractors. This means companies would be liable for their contractors’ employees or contractors’ violations. The bill also creates individual liability for anyone acting on behalf of an employer, client employer or contractor who violates any tax, benefit or wage law.
Shaming and debarment (A5841)
This bill allows the DOL to post on its website the names of people and companies that are found to be in violation of any state wage, benefit or tax law. Prior to the posting, the individual or entity is entitled to 15 days notice and a hearing within 20 days to contest the posting. Anyone placed on this list is prohibited from contracting with any public body until the Commissioner determines that all issues have been resolved to the DOL’s satisfaction.
Sharing of confidential tax information (A5842)
This bill allows the Department of Treasury to provide the DOL with tax information, audit files, returns, or any other information that would assist in investigating wage, benefit or tax law violations.
Mandatory postings and private right to sue for retaliation (A5843)
This bill requires employers to conspicuously post the following notifications:
- a statement that the law prohibits misclassifying contactors;
- a summary of the ABC test;
- the benefits and protections to which employees are entitled under wage, benefit and tax laws;
- the remedies available to misclassified employees; and
- how to contact the DOL.
The DOL will issue sample notifications. The bill further prohibits retaliation against any contractor who makes a complaint or is about to make a complaint. The bill also creates a private right of action enabling individuals to sue for retaliation, and requiring reinstatement, payment of lost wages and benefits, triple damages and legal fees upon an adverse decision. Persons who retaliate could also be subject to minor criminal penalties.
The use of independent contractors in New Jersey is becoming very risky. An oversight resulting in a finding of misclassification could potentially shut down a company and result in significant liability. If these bills become law, and we expect they will in some form, there will be little time to come into compliance. Therefore, it is strongly recommended that all companies review the 1099s (the Internal Revenue Service form filled out for independent contractors) that were issued in 2019 along with reoccurring payments from cash ledgers and reevaluate those relationships in light of these proposed new laws.