New Jersey Strengthens Enforcement Tools to Crack Down on Independent Contractor Misclassification

Seyfarth Synopsis: Governor Murphy signed 153 bills into law on January 20, 2020, including six (6) that increase enforcement mechanisms for state agencies to impose certain penalties against employers who misclassify workers as independent contractors.  Some portions of the legislation are effective immediately. 

Continuing his push to make New Jersey one of the most employee-friendly jurisdictions in the nation, Governor Murphy signed several pieces of legislation on January 20, 2020 to combat perceived rampant worker misclassification in the Garden State.  As discussed in more detail below, these laws: (1) permit the Department of Labor and Workforce Development (“LWD”) to issue stop-work orders to employers who misclassify their workers; (2) permit the LWD to issue penalties for worker misclassification; (3) require employers to post notices for employees regarding worker misclassification; (4) impose joint tax liability on contractors who supply employers with workers deemed to be misclassified as independent contractors; (5) permit the LWD to post information concerning a person or business who violates misclassification laws; and (6) permit the Department of Treasury to share tax data with LWD for the purpose of enforcing wage and worker classification laws.  Most all of these legislative efforts arise from recommendations made by the Governor’s Task Force on Employee Misclassification.

We summarize a few of the highlights below.

Stop-Work Orders

The first law permits the LWD to issue “stop-work orders” to employers found to be in non-compliance with the State’s various wage laws, including classification laws.  The LWD may also issue subpoenas for witnesses and documents relevant for the purposes of enforcing such laws. 

To issue a stop-work order, the LWD must first conduct an appropriate audit or investigation and thereby determine that the employer is in violation of its wage and classification obligations.  A late amendment to the law requires the LWD to provide to the employer at least seven days’ notice of its intent to issue the stop-work order. 

An employer is not, however, without any recourse under this new law as it permits an employer to seek injunctive relief from a court if it “can demonstrate that the stop-work order would be issued or has been issued in error.” 

This law is effective immediately. 

Financial Penalties for Wage Law Violations

The second law permits the LWD to issue penalties for those employers the LWD determines to have violated any State wage, benefit, or tax law if the violation relates to misclassification.  Two penalties may be collected by the LWD:

1. An “administrative misclassification penalty” up to a maximum of $250 per misclassified employee for a first violation and up to a maximum of $1,000 per misclassified employee for each subsequent violation, to be collected and kept by the LWD; and

2. A penalty paid to each misclassified worker of not more than 5% of each worker’s respective gross earnings during the prior 12 months.

The law provides that the LWD should consider the following factors in assessing the administrative misclassification penalty: (a) the history of previous violations by the employer; (b) the seriousness of the violation; (c) the good faith of the employer, and (d) the size of the employer’s business. 

The law further provides that the above-described penalties may not be levied until the LWD provides (1) notice to the employer of the violation and the amount of the penalty, and (2) an opportunity for the employer to request a hearing before the LWD.  An employer must request a hearing within 15 days following receipt of the notice in order to challenge the assessed penalties.

This law is effective immediately.

Obligation to Post Misclassification Notice

The third law requires employers to “conspicuously” post a workplace notice “in a form issued by the commissioner” that includes the following topics:

1. An explanation of the prohibition for employers to misclassify its workers;

2. The standard that is applied by the LWD to determine whether one is an employee or an independent contractor. The LWD’s current test is as follows:

A. The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact;

B. The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed; and

C. The individual is customarily engaged in an independently established trade, occupation, profession or business.[1]

3. The benefits and protections to which an employee is entitled under State wage, benefit and tax laws;

4. The remedies to which workers affected by misclassification may be entitled under New Jersey law; and

5. Information on how a worker or a worker’s authorized representative may contact, by telephone, mail and e-mail, a representative of the commissioner to provide information to, or file a complaint with, the representative regarding possible worker misclassification.

The LWD must post and maintain all of this information on its website for the benefit of both employers and workers. 

The law also prohibits an employer from retaliating against a worker who complains to his/her employer or the LWD regarding possible worker misclassification.

This law is effective April 1, 2020.  Presumably, the LWD will issue a form notice for employers to use prior to the law’s effective date.

Other Laws

The three other bills signed by Governor Murphy relating to misclassification warrant mention here as well.   The fourth law recognizes that labor contractors are subject to joint liability for worker misclassification claims and also imposes liability for an individual acting on behalf of such an entity.  This law is effective immediately. 

The fifth law permits the LWD to “post to a list on its website the name for any person who is found to be violation of any State wage, benefit, or tax law,” but only if the Commissioner of the LWD or a similar agency issued a final order regarding said violation of law.  The law provides several considerations the LWD must take into account in determining when to place an individual on this list.  It also provides that the LWD must provide 15 days’ notice of its intent to post the individual’s name to the website, after which the individual will have 20 days to request a hearing.  This law is also effective immediately. 

The sixth law amends New Jersey’s tax statutes by expanding the exceptions to the law’s confidentiality requirement and permitting the Department of Treasury to share tax information with the LWD for the purpose of “assisting in investigations pursuant to any state wage, benefit and tax law.”  This law too is effective immediately.

Conclusion

Employers with operations in New Jersey must remain vigilant and informed as to the numerous employee-friendly laws being pushed through under Governor Murphy, especially on the wage and hour front given the recently-signed Wage Theft Law and these efforts to target misclassification of workers.  Now more than ever, employers would be well served by conducting a review of their pay, timekeeping, and classification practices and policies.  Please feel free to consult with any of the authors regarding these and other New Jersey-specific updates.

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[1] At present, Senate Bill 4204, which seeks to codify a stricter ABC test, is pending.  This new law essentially codifies the present test utilized by LWD.