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State Senate Considering Bill Making It More Difficult to Establish Independent Contractor Status

On November 14, 2019, the New Jersey Senate Labor Committee voted to have Senate Bill 4204, which would make it more difficult to classify workers as “independent contractors” rather than employees, move forward for the rest of the Senate’s consideration. If passed by the full Legislature, the new law would become effective immediately upon signing by the Governor.

Under existing law, a worker is considered an employee unless an employer can show that the individual meets all three prongs of the so-called “ABC” test:

The employee is free from control or direction by the company over the performance of the service (both under his contract and in fact), and
The employee’s service is either outside the usual course of business for which the service is performed or performed outside of all of the places of business, and
The employee is customarily engaged in his or her own independently established trade, occupation, profession or business.

Senate Bill 4204 would make it more difficult to establish someone is an independent contractor. Specifically:

Under the new law, prong “B” of the ABC test would be amended such that the company would have to prove that the service is outside of its usual course of its business without regard to where it is performed.
Prong “C” would be amended and employers would have to prove that the independent business in which the individual is engaged is of the “same nature” as that involved in the work performed for the employer. In other words, the individual must be doing the same type of work for other employers in order to be considered an independent contractor.

This development in New Jersey comes on the heels of a new law in California, which similarly limits who can be classified as independent contractors and goes into effect on January 1, 2020 (California Assembly Bill 5). The California legislation expressly exempts certain professions from coverage, including doctors, dentists, insurance agents, stockbrokers, lawyers, accountants, real estate agents and others. It is anticipated that occupational exceptions will be made under the final New Jersey law as well.

This New Jersey bill has not been passed yet. Next steps will be a vote by the full Senate and, if passed, referral to the State Assembly for its consideration. NFC will keep you updated as to new developments in this important matter.


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