New Jersey Eyes Regulatory Changes to Strengthen its Statutory ABC Test and Prevent Employee Misclassification

Seyfarth Synopsis: On April 3, 2025, the New Jersey Department of Labor and Workforce Development (“DOL”) filed proposed new rules codifying its interpretation of the statutory ABC test to determine whether an individual is considered an independent contractor across several statutes. The effect of the proposed rules is that it would be more difficult for employers to classify workers as independent contractors.

Background

The DOL has long utilized the ABC test to analyze whether a worker is considered an employee or independent contractor. The test is used to determine worker status under various New Jersey statutes including, but not limited to, the New Jersey Unemployment Compensation Law (“UCL”) and the New Jersey Wage Payment Law.

By way of example, the UCL presumes that services performed by an individual for remuneration are by default considered “employment” unless the following factors are satisfied in full:

(A) such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and

(B) such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

For years, employers have grappled with the scope and application of this test. While the New Jersey Supreme Court has handed down several precedential decisions on this topic [2], neither the Legislature nor the Executive Branch have codified the holdings of these cases. As a result, it remains unclear what exactly an employer must show to satisfy each of the three prongs under the UCL.

DOL Regulations

Now, however, the DOL is seeking to make regulatory changes confirm its view of the independent contractor tests under the UCL and other New Jersey statutes. The changes will increase an employer’s burden to properly classify workers as independent contractors. Generally, the DOL regulations confirm that the putative employer bears the burden of proof to establish independent contractor status under the ABC test and, in so doing, must satisfy each of the three prongs. The codification of the burden of proof represents the State sending a message to employers that they bear the heavy burden of proof, and they should think twice when classifying their workers.

As it relates to each individual prong of the ABC test, the below chart summarizes key changes.

Prong A	Stating that control which stems from compliance with the law should be treated the same as control, generally. Currently: As the DOL notes in its proposed regulations, “there is nothing in New Jersey statute . . . to indicate that control or direction exercised by a putative employer to ensure compliance with a law or rule should be excluded from consideration when evaluating . . . Prong A . . . .” This, however, is directly contrary to how New Jersey courts have ruled on similar issues. For example, in one case, the Appellate Division found that a paralegal was an independent contractor under the ABC test even though the law firm was ethically required to exercise a certain level of control.[3] Noting that it must be shown that the employer has not exercised control, but also that that the employer has not reserved the right to control an individual’s performance and duties. Currently: The substance of this change derives from a 1991 New Jersey Supreme Court case, but does not appear in any statutes or regulations. Inserting a non-exhaustive, non-determinative list of nine factors for the DOL to consider when determining whether a worker is free from their employer’s control or direction. Currently: The governing statutes and regulations do not provide any concrete factors that will consistently be considered. Employers, as a result, must review various court decisions.
Prong B	“Places of business” refers to those locations where the enterprise has a physical plant or conducts an integral part of its business. As an example, if the service is performed by the worker at the putative employer’s customer’s residence, and the service is an essential part of the employer’s business, Prong B is satisfied. Currently: Governing statutes and regulations do not make clear what “places of business” means. The proposed change is a direct response to two New Jersey Supreme Court decisions. In particular, in the East Bay Drywall decision, the New Jersey Supreme Court, despite the DOL’s argument, declined to address whether the locations where drywall was being installed constituted a “place of business” under Prong B. The proposed regulations provide that it would be a “place of business” because that is the site where the business’ services are being performed. Inserting specific examples of what does and does not constitute services outside of the putative employer’s usual course of business. For example, a dentist engaging a cleaning service to clean its office will typically be outside the usual course of business; however, a country club engaging the services of a caddie will typically not be outside of the putative employer’s usual course of business. Currently: Governing statutes and regulations do not provide examples of what does and does not constitute services outside of the putative employer’s usual course of business. The Department is now exercising its statutory authority and expertise to provide more guidance, and foreclose any challenges by employers.
Prong C	Inserting a non-exhaustive, non-determinative list of seven factors for the DOL to consider when determining whether a worker is customarily engaged in an independently established trade, occupation, profession, or business. Currently: Governing statues and regulations do not provide clarification. The substance of this change derives directly from a New Jersey Supreme Court decision. Noting that to satisfy Prong C, the reference to “independently established” means an enterprise or business that exists beyond the end of the worker’s relationship with the putative employer. Currently: Governing statues and regulations do not provide clarification. The substance of this change derives directly from a New Jersey Supreme Court decision. Noting that multiple employment does not satisfy Prong C. Currently: Governing statues and regulations do not provide clarification. The substance of this change derives from various administrative determinations, court decisions, and the DOL’s interpretation of Prong C. Codifying the ruling of East Bay Drywall, which made clear that proof of business registration, or the creation of an LLC or corporation is not, standing alone, sufficient to show an “independently established” business. Currently: Governing statues and regulations do not provide clarification. The substance of this change derives directly from a New Jersey Supreme Court decision.

Implications for Employers

The proposed regulations, if adopted, represent New Jersey’s ongoing and aggressive push to minimize employers’ ability to classify workers as independent contractors. The regulations also overlook the fact that workers themselves often desire to be classified as independent contractors, and it is not necessarily the employer who makes the initial decision to classify workers as such.

New Jersey-based employers that use independent contractors are encouraged to consult with counsel on questions regarding worker status to minimize the risk for a potential DOL audit or misclassification assessment.

Feel free to reach out to any of the authors of this alert, or your regular Seyfarth contact, with any questions.

[1] N.J.S.A. 43:21-19(i)(6).

[2] See, e.g., East Bay Drywall, LLC v. Dep’t of Labor & Workforce Dev., 251 N.J. 477 (2022); Carpet Remnant Warehouse, Inc. v. New Jersey Dep’t of Labor, 125 N.J. 567 (1991).

[3] See L. Off. Of Gerard C. Vince, LLC v. Bd. Of Rev., No. A-5441-17T2, 2019 WL 4165066, at *3 (N.J. Super. Ct. App. Div. Sept. 3, 2019).

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