On May 1, 2025, the U.S. Department of Labor (DOL) issued a field assistance bulletin announcing it will no longer apply the 2024 Biden-era independent contractor classification rule in current enforcement matters. Instead, the DOL will rely on “longstanding principles” outlined in Fact Sheet #13 and the reinstated Opinion Letter FLSA2019-6, which addresses classification in the context of virtual marketplace platforms. As we previously reported HERE, the 2024 rule replaced the first Trump Administration’s 2021 standard with a complex “totality of the circumstances” analysis that made it more difficult to classify workers as independent contractors under the Fair Labor Standards Act.
As a result – effective as of May 1 – the DOL will revert to the less stringent “economic realities” test, which focuses on the following factors:
- Whether the services rendered are integral to the business;
- The permanency of the relationship;
- The worker’s investment in facilities and equipment;
- The nature and degree of control over the worker;
- The worker’s opportunity for profit and loss;
- The amount of judgment or initiative in open market competition required for the worker’s success; and
- The degree of independent business organization and operation.
New Jersey’s ABC Test and the Proposed New Rules
On May 5, 2025, the New Jersey Department of Labor and Workforce Development (NJDOL) filed a notice of proposal for new rules to codify the NJDOL’s interpretation of the ABC test to determine independent contractor status under the New Jersey Unemployment Compensation Law, the New Jersey Wage and Hour Law, the New Jersey Wage Payment Law, and other New Jersey laws. While the prongs remain the same, the proposed rules provide detailed guidelines to evaluate each prong, including factors used by the New Jersey Supreme Court in Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991) and East Bay Drywall, LLC v. Dep’t of Labor and Workforce Development, 251 N.J. 477 (2022). Read on to learn more about determining independent contractor status under the ABC test and what’s new under the proposed rules.
Burden of Proof
ABC test:An individual is considered an employee unless the employer meets the burden of proof to establish independent contractor status under each prong of the ABC test.
What’s new: The proposed rules clarify that – “because the ABC test is written in the conjunctive” – the employer must establish that the services and the individual providing the services meet all three prongs of the test.
Prong A: Freedom from Control or Direction
ABC test: The employer neither exercises control or direction over the individual’s work, nor reserves the right to control or direct the individual’s work.
What’s new: The proposed rules make clear that an employer need not control every aspect of performance for the individual to be considered an employee, and set forth a non-exhaustive list of factors that may be considered in determining control, including:
- Whether the individual is required to work set hours or jobs;
- Whether the employer has the right to control the means by which the services are performed;
- Whether the employer negotiates for and acquires the work for the individual;
- Whether the employer fixes the individual’s rate of pay;
- Whether the individual bears any risk of loss for the work performed;
- Whether the individual is required to be on-call at set times;
- Whether the employer limits the individual from performing work for other parties; and
- Whether the employer provides training to the individual.
Prong B: Outside the Usual Course or Places of Business
ABC test: The services performed are outside the employer’s usual course of business, or the services are performed outside of all the employer’s places of business.
What’s new: The proposed rules provide guidance on the terms “usual course of business” and “places of business,” with examples of each.
The proposed rules clarify that the “usual course of business” may include activities the employer regularly engages in “to generate revenue or develop, produce, sell, market, or provide goods or services.” Some examples of services performed outside the usual course of business include:
- A cleaning person engaged by a dentist to clean the office.
- A musician engaged by a restaurant to perform for the customers.
- A landscaper engaged by a law firm to trim hedges and mow the lawn.
The proposed rules clarify that “places of business” refer to locations where the employer (1) has a “physical plant” where a substantial amount of work is performed (e.g., an office, store, or factory), or (2) “conducts an integral part of its business,” including locations outside a physical plant where the services performed are an essential – rather than ancillary – component of the business (e.g., the residence or place of business of an employer’s client where the individual performs services essential to the employer’s business). Some examples of services performed outside of the places of business include:
- Essential: A drywall installation business engages an individual to install drywall at the customer’s residence (i.e., drywall installation is an essential component of the business).
- Ancillary: A carpet sales business engages an individual to install carpet at a customer’s residence (i.e., carpet installation is ancillary to the business of carpet sales).
Prong C: Independently Established Business
ABC test: The individual is customarily engaged in an independently established trade, occupation, profession, or business.
What’s new: To meet the burden under this prong, the proposed rules clarify that the employer must establish that the individual operates an existing enterprise that can survive the termination of the relationship with the employer. This determination requires an evaluation of the “totality of the facts,” which may include consideration of a non-exhaustive list of factors, including:
- The duration, strength, and viability of the individual’s business;
- The number of customers and volume of business from each customer;
- The amount of remuneration the individual receives from the employer compared to the amount received from others;
- The number of employees of the individual’s business;
- Extent of investment by the individual in their own tools, equipment, and other resources;
- Whether the individual sets their own rate of pay; and
- Whether the individual advertises, maintains a business location, and is available to work in the market.
The proposed rules further explain that each of the following, alone, is insufficient to meet Prong C:
- Having multiple employers;
- Working in other industries or professions unrelated to the services provided;
- Licensure in an occupation or profession;
- Proof of business registration; or
- Having liability insurance or workers’ compensation insurance.
Additional Principles Under the Proposed Rules
The proposed rules set forth additional principles governing the application of the ABC test, including the following:
- Independent contractor status is determined based on an evaluation of the facts surrounding the relationship between the employer and the individual, and the application of the test to those facts.
- An employer cannot “transform” an individual into an independent contractor by using an IRS Form 1099 versus an IRS Form W2.
- An agreement that labels an individual as an independent contractor is not dispositive under the ABC test.
- The fact that an individual would not qualify for unemployment benefits based on their earnings – whether or not solely through the employer – is not relevant under the ABC test.
Employer Takeaways
The NJDOL is accepting comments on the proposed rules until June 7, 2025. In the meantime, employers should consider taking the following steps:
- Conduct an audit of existing independent contractor relationships; and
- Review independent contractor policies, practices, and agreements to ensure compliance with the ABC test and the proposed rules.
If you have any questions related to the proposed rules or need assistance reviewing independent contractor agreements, policies, and/or practices, please reach out to the NFC Attorney with whom you typically work or call us at 973.665.9100.