After Governor Phil Murphy signed into law an array of legislation in 2020, designed to identify and penalize New Jersey business enterprises for the misclassification of employees as independent contractors, New Jersey passed four new laws in the summer of 2021 to lend support to these earlier efforts to reduce worker misclassification. Misclassification has been a “growing problem” in New Jersey, Sen. Fred Madden, D-Gloucester, chair of the Senate Labor Committee, stated when the laws were signed. Business owners and their attorneys alike are nervous that these new bills will cause significant financial and administrative problems for employers.

Four laws are at the forefront of New Jersey’s revived emphasis on targeting worker misclassification. There are severe penalties associated with these misclassification violations, which can handcuff employers at the most inopportune times, effectively hindering their ability to conduct business.

A quick summary of these four new pieces of legislation follows.

A5890: Injunctions and Stop-Work Orders

Effective immediately, this law allows the Commissioner of the Department of Labor and Workforce Development to seek a superior court injunction to prevent ongoing violations of State wage, benefit, and tax laws stemming from employee misclassification. The new law allows the Commissioner to bypass prior administrative requirements and go straight to court.

Also, the Commissioner is now able to issue broader stop-work orders that extend across all the employer’s worksites and places of business if the employer violates wage and hour laws. Prior to this bill’s enactment, the Commissioner’s shut-down orders could only apply to the specific location where the violation occurred.

A5891: Office of Strategic Enforcement and Compliance

Effective immediately, A5891 creates the “Office of Strategic Enforcement and Compliance,” to coordinate the investigation of all employee misclassification claims across all state agencies.

A5892: Insurance Fraud

Effective January 2022, A5892 makes the misclassification of employees to evade the payment of insurance premiums a violation of the New Jersey Insurance Fraud Prevention Act. Penalties are $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation.

A1171: Public Database for Public Works Projects

Effective January 2022, this law creates a public database of certified payroll information for all public works projects.

Employment law attorneys fear that these new laws could drive their clients out of business with extensive fines and broader shutdown orders. Further, they contend that the law’s primary purpose is to rebuild the state unemployment compensation fund, which has been significantly depleted because of the pandemic.

State officials claim New Jersey’s record unemployment claims exceeded 1 million between March and June 2020, the first months of the pandemic, amounting to the highest number of claims ever received in such a short period. Officials came to realize that every misclassified worker represents lost contributions to the state’s funding for workforce programs.

Misclassification is used by some employers to avoid paying minimum wage, overtime pay, unemployment compensation, and other employee benefits. It also prevents the state from receiving funding contributions in certain circumstances.

Governor Murphy slammed misclassification as “unfair, abusive, and illegal” while Labor Commissioner Robert Asaro-Angelo said that the laws will bolster not only the workforce but the “employers who play by the rules and properly classify their workers.” The legislation’s sponsors hope these laws will ensure that eligible workers receive employee protections such as fair wages, disability, health benefits, medical leave, and unemployment insurance.