NJ Continues Its Aggressive Crackdown On Independent Contractor Misclassification – Employment and HR

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NJ continues its aggressive crackdown on misclassification of independent contractors

July 15, 2021

Seyfarth Shaw LLP

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Seyfarth synopsiss: New Jersey Governor Phil Murphy signed a package of laws on July 8, 2021 that will improve enforcement mechanisms for state agencies to impose a variety of penalties on employers who falsely designate workers as independent contractors and set up a new office, that was specially developed to enforce such violations. Most parts of the law are effective immediately.

In pursuit of his commitment to tackling the perceived misclassification of workers in the Garden State, Governor Murphy signed an additional law to misclassify independent contractors. We discussed the Murphy government’s 2020 legislative efforts to address misclassification concerns. Now, according to his administration, Governor Murphy has taken the following additional steps to ensure that “New Jersey is the best state to work in in the whole country”:

• injunction. Bill A-5890 / S3920 gives the Commissioner of the Department of Labor and Workforce Development (“DOL”) an injunction to prevent ongoing violations of state wage, benefit and tax laws due to employee misclassification for the the commissioner would be entitled to collect legal and litigation costs should they prevail. The law does not set any standards or factors for the Commissioner to consider when deciding whether to pursue an enforcement action and instead leaves such analysis to “the Commissioner’s sole discretion”. This provision takes effect immediately.
• Work stop orders. While the Commissioner has already been able to issue a work stoppage order for the “specific place of business” where a misclassification violation has occurred, Bill A-5890 / S3920 goes further and gives the Commissioner the authority to issue a work stoppage order for one or more workplaces or at all workplaces of an employer, if the employer commits a single violation of a state wage, benefit or tax law. These stoppage orders may remain in effect until the Commissioner determines that the employer has complied with the rules and paid the penalties set and is not suspended by a request from the employer for a hearing. In addition, the 72 hour stoppage order becomes a final order unless an employer appeals in writing to the commissioner’s decision to issue the order. In addition, employees affected by such a stoppage are entitled to remuneration from the employer for the first 10 working days that are lost due to the stoppage. The Commissioner can take any legal action necessary to claim unpaid wages for the first 10 days of cessation. Finally, the agent may impose a civil penalty of $ 5,000 per day on an employer for every day he engages in non-work stoppage business activities. This provision takes effect immediately.
• Creation of the Office of Strategic Enforcement and Compliance. Bill A-5891 / S3921 creates a new office within DOL – the Office of Strategic Enforcement and Compliance (“OSEC”) – to oversee and coordinate the departments of DOL and between DOL and other government agencies and bodies, e.g. strategic enforcement of state wage, benefit and tax laws. The law stipulates that as a condition for the granting of direct business assistance by the DOL or for the transmission of a report to another government agency or body that a company is in order, the DOL first determines whether the person or company is a has outstanding liability to DOL, including for unpaid contributions to the unemployment insurance fund or the state disability insurance fund, unless the company has reached an agreement with DOL to immediately and fully comply with the laws and regulations enforced by DOL and to disclose all failures or defects within a deadline set by the Commissioner. The bill gives DOL $ 1 million to support and expand the OSEC to accomplish the purposes of the bill. This law is effective immediately.
• Insurance fraud. A-5892 / S3922 makes misclassification of employees for the purpose of evading insurance premium payment a violation of the New Jersey Insurance Fraud Prevention Act and penalties for misclassified fraud – $ 5,000 for the first violation, $ 10,000 for the second violation and $ 15,000 for each subsequent violation. In addition, this bill allows the Bureau of Fraud Deterrence and the Insurance Fraud Prosecutor’s Office to consult with the DOL to help investigate the improper classification of employees “in order to wrongly receive benefits or pay insurance in full to bypass “. Benefits or insurance premiums. ” This law comes into force either on January 1, 2022 or February 1, 2022.1

With these developments, the existing application of the ABC test in New Jersey, and a wage theft law that gives workers a six-year statute of limitations and a three-time penalty, employers operating in New Jersey must consider how these new laws will affect theirs Business models, especially those that rely on independent contractors to support their business operations. As New Jersey moves to the fore in independent contractor compliance, employers are encouraged to conduct a review of their pay, time recording, and classification practices and policies in light of these developments. Please contact one of the authors regarding this and other New Jersey-specific updates.

footnote

1 The legislation states: “This draft law shall come into force on the first day of the sixth month following the day of entry into force.”

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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