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Combatting Misclassification of an Employee as an Independent Contractor

There has been a history of employee misclassification in New Jersey and across the United States. Unfortunately, the misclassification of what is actually an employee as an independent contractor means that the person misses out on critical employment benefits. Independent contractors are not just treated differently for tax purposes, but they do not have the same rights and privileges that are enjoyed by employees. For instance, employees are afforded wage and hour protections as well as unemployment benefits and paid sick leave. Independent contractors are not. This is why it is so crucial for employers to properly categorize workers as independent contractors or employees. New Jersey has recognized that misclassification continues to be a problem and is taking steps to help adequately address the issue.

Combatting Misclassification of an Employee as an Independent Contractor

There are a number of different tests different jurisdictions use to decide whether a worker is an independent contractor or an employee. New Jersey uses the “ABC Test” to determine whether an employee classification is appropriate or not. In order to designate a worker as an independent contractor as opposed to an employee, a New Jersey employer must establish that:

  • The worker is free from the employer’s control or direction in regard to the services the worker is providing.
  • The worker is doing work outside of the usual course of business.
  • The worker is providing a service of an independently established trade, occupation, or business.

All of these elements must be established. If even just one element is missing, then the worker must be categorized as an employee and not an independent contractor.

Despite having the ABC test to use in determining worker classification, misclassification continues to be a problem in New Jersey. That is why Governor Phil Murphy has shown his support of extensive legislation regarding the proper classification of workers in the state. On January 20, 2020, for instance, Governor Murphy signed legislation into law that aimed to strengthen enforcement mechanisms at the disposal of the New Jersey Department of Labor and Workforce Development’s as well as protections for those employees who have been misclassified.

More specifically, the legislation provided for additional penalties for employers who misclassified employees. Furthermore, the New Jersey Department of Labor was granted authority to issue stop-work orders for those employers found to be in violation of wage and benefit laws and tax laws. Employers and staffing agencies can be held jointly and severally liable for these laws as well. The New Jersey Department of Labor is also authorized to post a list of those found in violation of these laws on their website.

The press to develop legislation to address the problem of worker misclassification did not stop there. Governor Murphy signed another package of bills into law on July 8, 2021, aimed at resolving the problem as well. This legislation broadened the New Jersey Department of Labor and Workforce Development’s authority to enforce state wage laws. It also provided enhanced penalties for employers found to be misclassifying employees.

Employment Law Attorneys

Have you been improperly classified as an independent contractor when you should have been afforded the rights associated with classification as an employee? Reach out to the dedicated employment law team at Castronovo & McKinney and get trusted legal counsel by your side. Contact us today.