New Jersey: Proposed Regulations for Independent Contractor Classification Test
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APPLIES TO All Employers with Employees in NJ |
EFFECTIVE As Indicated |
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Discussion
On April 28, 2025, the New Jersey Department of Labor and Workforce Development (NJDOL) issued proposed regulations that significantly expand the interpretation of the ABC test used to determine whether a worker is an employee or an independent contractor under state wage, hour, and benefits laws.
Under current state law, the ABC test requires that all three prongs be met for a worker to be classified as an independent contractor:
- Prong A: The worker must be free from control or direction in performing the service.
- Prong B: The service must be outside the usual course of the employer’s business or performed outside all places of business.
- Prong C: The worker must be customarily engaged in an independently established trade or business.
The proposed regulations broaden each prong:
- Prong A: The proposed regulations go beyond existing case law by stating that even the reservation of control, whether or not exercised, can disqualify a worker from independent contractor status. The NJDOL outlines a broad list of factors to evaluate control, including who sets work hours, whether the employer requires specific tools or uniforms, whether the worker must report progress, and whether the employer provides training. Even minimal oversight or requirements could be enough to fail this prong.
- Prong B: The NJDOL adopts an expansive view of what constitutes the “usual course of business,” including any activity the employer regularly engages in to generate revenue or provide services. It also broadens the definition of “place of business” to include not just physical offices or facilities, but also customer homes, remote work locations, and even vehicles used in service delivery. This makes it more difficult for employers to argue that a contractor’s work is performed outside their business scope or location. The proposed regulations also provide examples of what will likely be deemed within the employer’s scope of business, including a transportation network company engaging a driver to transport customers, a drywall installation company engaging a drywall installer, or a country club engaging a golf caddie to work on its golf course.
- Prong C: The proposed rules raise the bar for proving that a worker is engaged in an independent business. Factors include the number of clients, business viability, investment in tools, and whether the worker advertises or sets their own rates. However, the NJDOL emphasizes that having multiple clients, a professional license, or even business insurance is not enough. The regulations also downplay the significance of independent contractor agreements and clarify that issuing a 1099 form does not determine status.
The proposed rules also target common employer defenses, stating that the structure of a contract (e.g., whether it was negotiated or drafted unilaterally) and the ability to terminate the relationship at-will are relevant to determining control. These proposed changes, if adopted, would make it significantly harder for employers to classify workers as independent contractors in New Jersey.
Action Items
- Have independent contractor classifications reviewed by legal counsel in anticipation of proposed rules being adopted.
- If appropriate, revise contractor agreements with legal counsel.
- Monitor developments in the rule-making process.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2025 ManagEase