March 27, 2023

Volume XIII, Number 86


March 24, 2023

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New Jersey Bill Would Codify a Stricter Version of ABC Test for Determining Independent Contractor Status

On November 7th a bill was introduced in the New Jersey legislature that would, like California’s AB 5, codify a stricter version of the ABC test for determining independent contractor classification. The bill, S4204 (text available here), also affirms New Jersey courts’ use of the ABC test under the state’s unemployment law, Wage and Hour Law, Wage Payment Law, and other contexts.

Similar to California’s AB 5, the New Jersey bill would go much further than merely codifying past practice. Indeed, S4204 would not only codify the ABC test as used by New Jersey courts in the past, it would adopt a stricter version of the ABC test, thereby making it more difficult for companies to classify workers as independent contractors. Under the current version of the ABC test, an individual is considered an employee of the company he or she is working for unless:

  1. The individual is free from control or direction over the performance of services;

  2. The service is either outside the usual course of the business for which it is performed, or the service is performed outside of all the places of business of the enterprise for which it is performed; and

  3. The individual is customarily engaged in an independently established trade, occupation, profession, or business.

If enacted, S4204 would eliminate the ability for companies to satisfy prong “B” by showing that the work performed by the individual is away from the company’s place of business. In other words, a company would now only be able to satisfy prong “B” by showing that the work performed by the individual is outside of the company’s usual core business. This modified prong “B” is potentially troublesome for any business that uses independent contractors to deliver or provide their core product or service, such as those in the “gig economy.”  S4204 also adds a requirement to prong “C” that the individual must provide the company with the same type of services he or she provides in that profession or trade.

These proposed changes, if enacted, would make it significantly harder for companies to classify individuals as independent contractors. Given the number of employee-friendly laws passed by this legislature, there is a strong possibility that this bill will be passed by the New Jersey legislature. We will continue to monitor S4204 and provide updates as the bill makes its way through the New Jersey legislature.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume IX, Number 319

About this Author

James Hays, Legal Specialist, management of labor and employment law

 Mr. Hays is a partner in the Labor & Employment Practice Group in the firm's New York office and co-chairs the firm's Traditional Labor Law Team.

Areas of Practice

Mr. Hays' practice focuses on management labor and employment law. He represents clients in collective bargaining negotiations, labor arbitrations, and all stages of the labor election process, including election campaigns and hearings before the National Labor Relations Board. He also represents clients in employment litigation in federal and state courts, as well as...

Sean Kirby, Legal Specialist, Sheppard Mullin, Labor, Employment

Sean Kirby is an associate in the Labor and Employment Practice Group in the firm's New York Office.

Areas of Practice

Mr. Kirby has experience representing management in a variety of employment-based matters in both judicial and arbitral forums, including disputes relating to discrimination and harassment allegations, breach of restrictive covenants and employment agreements, and wrongful termination.  Mr. Kirby also counsels employers on labor and employment issues, including wage and hour matters, personnel policies and internal investigations. In addition...