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Retaining Independent Contractors in New Jersey Just Got Even Riskier

On January 21, 2020, New Jersey Governor Phil Murphy signed into law three bills that increase the potential pitfalls for businesses that rely on independent contractors. One new law adds to the penalties for misclassifying employees as independent contractors. Another new law imposes liability on businesses ─ including potential liability on individual managers ─ that use staffing companies that misclassify workers. The third new law adopts new posting requirements and anti-retaliation provisions.

New Penalties: A.B. 5839

“[I]n addition to imposing any other remedies or penalties authorized by law,” this new law authorizes the New Jersey Department of Labor and Workforce Development to impose fines on businesses that misclassify employees as independent contractors. The agency may impose a maximum “misclassification penalty” of $250 per misclassified employee for the first violation and up to $1,000 per misclassified employee for each subsequent violation. In imposing a penalty, the law requires the agency to consider “the history of previous violations by the employer, the seriousness of the violation, the good faith of the employer and the size of the employer’s business.” In addition, the agency is empowered to direct the business to pay a penalty to the misclassified worker in an amount not to exceed 5 percent of the worker’s gross earnings over the prior 12 months. When the agency determines that a business has misclassified an employee as an independent contractor, the alleged violator is entitled to a hearing, upon timely request.

This law took effect immediately upon enactment.

Expanded Liability: A.B. 5840

This new law imposes liability for employee misclassification on businesses that contract with a “labor contractor” (such as a staffing company) to provide workers for use in the “usual course of business.” Under the law, both the business and the contractor are jointly and severally liable for worker misclassification and the law renders “void and unenforceable” as “contrary to public policy” any purported “waiver” seeking to shift liability exclusively to the contractor.

In addition, with respect to misclassifying workers, the law imposes personal liability on any “individual acting on behalf of an employer” ─ including “an owner, director, officer, or manager of the employer.”

This law took effect immediately upon enactment.

Posting Requirement and Anti-Retaliation: A.B. 5843

The posting requirements set forth in this new law require businesses to “conspicuously post” notices (in a form to be issued by the New Jersey Department of Labor and Workforce Development) that explain:

  • Employers are prohibited from misclassifying employees

  • The standard for determining whether an independent contractor is properly classified

  • The benefits and protections employees receive under “State wage, benefit and tax laws”

  • The remedies available to misclassified workers under New Jersey law

  • How to contact the Department of Labor and Workforce Development

The anti-retaliation provisions set forth in this new law prohibit a business from terminating or otherwise discriminating against an “employee” for inquiring or complaining about “possible worker misclassification” or for initiating or preparing to initiate or for testifying in “any proceeding regarding worker misclassification under State wage, benefit and tax laws.” It is unclear whether these anti-retaliation protections extend to workers who are properly classified as independent contractors.

This law takes effect on April 1, 2020.

Conclusion

It is increasingly difficult in New Jersey (and elsewhere) for a business to confidently retain an independent contractor without concern that, in the future, a court or agency may determine that the business should have classified the worker as an employee. For New Jersey businesses, one sliver of good news is that, so far, the state has not enacted a law similar to California’s A.B. 5, which pushes furthest in restricting the use of independent contractors. Nonetheless, New Jersey is among the states most aggressively limiting the use of independent contractors. As a result, this area is a minefield for businesses. However, with the assistance of counsel, New Jersey businesses can take steps to minimize the risk of employee misclassification and potential exposure.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.

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About this Author

William Horowitz, Litigation lawyer, Drinker Biddle
Counsel

William R. Horwitz advises employers on employment related issues and defends employers in litigation before state and federal courts, and before administrative agencies and in arbitration. Bill is a former prosecutor, having worked at the Queens County District Attorney’s Office, where he focused on appellate litigation. Since leaving the D.A.’s office, Bill has spent almost 20 years representing employers. He has extensive experience litigating wage and hour class and collective actions throughout the country, including both off-the-clock and...

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