Employers Misclassifying Workers as Independent Contractors: A Six-Pack of Employee Misclassification Laws
We ended last year with a blog post reviewing a number of new laws and amendments to existing laws that were enacted in 2019. On Tuesday, January 21, 2020, Gov. Phil Murphy signed 153 new laws, whose effects range from banning flavored vape products to allowing lottery winners to remain anonymous. Several significantly affect the employment landscape in New Jersey. Today we will address a series of laws concerning the misclassification of workers as independent contractors. Later, we will detail the enormous changes that have been made to New Jersey’s Plant Closing Law. The new year has barely begun, and New Jersey’s push to be one of the country’s most employee-friendly states shows no sign of stopping.
What Is Employee Misclassification?
Since being elected, Gov. Murphy has targeted the issue of misclassifying workers as independent contractors rather than employees. The significance of this distinction is simple – employees pay taxes and contribute to the state’s unemployment and disability funds. Independent contractors do not. This past Tuesday, Gov. Murphy signed 6 new laws that address the misclassification issue and provide for significant liabilities for those employers found to have misclassified workers.
The Six-Pack of Misclassification Laws:
A 5838 – Stop Orders
Under this law, the New Jersey Department of Labor (“DOL”) is now empowered to issue stop-work orders against any employer who is found to be a violation of “any State, wage, benefit and tax law.” This would include failure to pay wages required by law and misclassification of a worker as an independent contractor. The stop-work order would require the cessation of all business operations at the place where the violation exists.
The process for a stop-work order is also laid out in the law. The DOL first serves a notice of intent to issue a stop-work order, giving an employer at least 7 days’ notice. Within 72 hours of receiving the order, an employer can request a hearing before the DOL Commissioner. That hearing must be held within 7 days of the employer’s request, and a decision must be rendered within 5 days of the hearing. If the employer disagrees with the decision, it may appeal the decision to the Superior Court. As an alternative to the DOL hearing process, an employer may seek injunctive relief.
If an employer continues to conduct business operations in violation of a stop-work order, the DOL may impose penalties of $5,000 per day.
A 5839 – Additional Penalties
The Wage Theft Act enacted last year increased the potential penalties for an employer who fails to comply with state wage and hour laws. New penalties are now available against employers who misclassify workers. The new law provides an administrative “misclassification penalty” of up to $250 for each misclassified employee for first violations, and up to $1,000 per employee for each subsequent violation. In addition, a penalty will be paid to the misclassified worker of “not more than 5 percent of the worker’s gross earnings over the past twelve months from the employer who failed to properly classify them.”
A 5840 – Joint Liability
As we previously reported, one of the most significant changes created by the Wage Theft Act is the possible liability for employers who use contractors. The employer and the labor contractor who provides workers to the employer are subject to joint and several liability and will share civil legal responsibility for any violations of the state’s wage and hour laws. This includes not only the payment of wages, but any retaliatory actions taken against an employee.
Gov. Murphy amended the Wage Theft Act so that there is also joint and several liability when the state employment tax laws are violated. So, if you use contract employees and your contractor improperly classifies its workers as independent contractors, you could be liable for all the fines, penalties, and damages resulting from this misclassification.
A 5843 – Notice Posting
This law requires employers to post in the workplace a notice of the prohibition against misclassifying workers, the benefits and protections available to employees and the remedies available under all of the new laws. The DOL is tasked with developing and issuing a form of notice for employers. The law also prohibits any form of retaliation against an employee who inquires or makes a complaint about worker misclassification and provides a private cause of action for employees who are retaliated against. Finally, any employer who violates any part of this law shall be guilty of a disorderly person’s offense and pay fines between $100 and $1,000.
While all the other laws mentioned in this post are effective upon the governor’s signing, the notice posting law goes into effect on April 1, 2020, presumably to give the DOL time to draft and issue the form of notice.
S 4226 – DOL Website Posting
This law permits the DOL to post on its website the name of any person who is found to be in violation of any state wage, benefit, or tax law, and who has had a final order issued against them by the DOL Commissioner. The DOL is required to give 15 days’ advance notice before posting, and any person who receives a notice can request a hearing. A person whose name is posted on the DOL website is prohibited from contracting with any public body until the liability for violations has been resolved.
S 4228 – Tax Data Sharing
This law permits the State Division of Taxation to share with the DOL the following information (which was previously deemed confidential): tax information statements, reports, audit files, returns, or reports of any investigation for the purpose of labor market research or assisting in investigations pursuant to any state wage, benefit or tax law.
How Do Employers Avoid Misclassification Laws?
New Jersey employers are fully on notice that dealing with independent contractors is complicated and potentially costly. Accordingly, they should review any such relationships, as well as any contracts they may have with contractors, to ensure compliance with these new laws and obtain the protections needed to avoid liability.