Changes in the New Jersey independent contractor rule, revealed last week, are taking some of the edge off earlier hostility to the proposal when it was first introduced.
But what remains is still being viewed by those who hire independent contractors as an ABC test that will be one of the most stringent in the country.
The rule was released by the New Jersey Department of Labor (NJDOL) in order to codify regulatory precedents that have built up over the years and put into the regulatory framework. The new IC rule will be used by agencies interpreting such laws as New Jersey’s Wage & Hour law and its Wage Payment law, according to the NJDOL in its announcement of the rule.
New Jersey’s ABC rule on its surface is similar to ABC tests in other states. It is not a law, unlike California’s AB5, but rather a product drawn from earlier regulatory and court rulings.
It says for a worker to be independent, that person must meet all three of these criteria:
A) Worker has been and will continue to be free from control or direction over the performance of services, both under the worker’s contract of service and in fact;
B) Work performed is either outside the usual course of the business for which the work is being performed, or the work is performed outside of all the places of business of the enterprise; and
C) Worker is customarily engaged in an independently established trade, occupation, profession or business.
The details in further defining those three was at the heart of the recent process.
Legal commentary that surrounded the recently-announced changes mostly were in agreement on what were the most significant shifts from the initial proposal, with one of the biggest seemingly being the most simple.
Complying with the law no longer a trigger
In what was seen as the most radical change in the original proposal, New Jersey’s A prong would have established that a worker was more likely to be found to be an employee rather than an IC if the employer required compliance with laws or regulations.
As the initial proposal put it, “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 the facts of a potential employment relationship under Prong A of the ABC test.”
In other words, requiring a worker to follow the law could be interpreted as “control” of the employee, which is core to Prong A.
That regulation regarding compliance with the law is now out of the revised proposal. The new language reads: “Actions taken by a putative employer solely to comply with federal, state, or local, laws or regulations shall not, standing alone, be considered evidence of control or direction under Prong A.”
Greg Feary, a partner at the trucking-focused law firm of Scopelitis, described the impact of that change on trucking as “big.” “The rules, regulations and laws are big in any industry that’s heavily regulated,” Feary said in an interview with FreightWaves. “Safety in trucking is heavily regulated, as well as federal leasing regulations.”
Having a trucking company require its ICs to follow those laws is standard practice, Feary noted. And under the New Jersey law, a company requiring adherence to the law could be viewed as establishing an employee relationship, rather than a truly independent status.
It would have been a big problem
In its submitted comments to the state on the rule, attorney Richard Reibstein of the law firm of Troutman Pepper Locke, who specializes in IC law, was more stark on what the impact would have been had that rule stayed in.
“Unless this part of the regulation is corrected, it will foster the elimination of almost all independent contractors in this state,” Reibstein wrote.
Feary said a second change that can be viewed as having an impact on transportation specifically was the proposal that the use of proprietary apps could be seen as also exerting employer control under the A prong.
“The proposed rule mentions proprietary apps as evidence of control,” Feary said. The apps could be anything from a dispatch app or a scanner app, he said.
“But they deleted all of that from the final rule,” Feary said. “That’s a good thing.”
Another change Feary said was positive for the trucking sector is a definition of a company’s place of business that could have been wide enough to bring in the cab of a truck as a place of business.
In his comments, Reibstein said that proposal regarding the definition of a place of business “takes an extraordinarily expansive view of the second part of the B Prong. It states that a hiring party’s ‘places of business’ not only include ‘locations where the enterprise has a physical plant or conducts an integral part of its business,’ but may also include ‘locations outside of the putative employer’s physical plant, where the services performed by the individual [worker] are an essential component of, rather than ancillary to, the putative employer’s business.’”
He added that the definition of “essential” and “ancillary” were vague. But it did not make it through to the final rule.
State business group still has objections
Even with those changes, not everybody is happy.
The New Jersey Business & Industry Association, in testimony submitted Tuesday to a hearing held by the Senate Labor Committee, spelled out some of its concerns with the regulation even after the changes have been implemented.
The organization backed several of the changes in Prong A regarding control. But it objected to various parts of the B and C prongs regarding the definition of an “independently established business.”
As the law firm of Morgan Lewis said in an online commentary, “under Prong C, the final regulations still specify that holding a professional license, having multiple employers, registering a business entity, receiving a 1099 tax form, or carrying insurance are not individually sufficient to establish an independently established business.”
In the testimony delivered by Jack Kelly, a policy analyst with NJBIA, the organization said the new rule, even after the amendments, are “a sweeping and unilateral redefinition of settled legal standards, one that would dramatically narrow the pathways to independent work in the State.”
In bundling up the precedents set by earlier court cases in New Jersey on independent contractor law–a 1991 case known as Carpet Remnant Warehouse comes up frequently in discussion of the state’s IC regulation–NJBIA said the new rules still apply too strict a standard to determine whether a business serving a third party can be classified as an IC.
“Proving independent contractor status is nearly impossible in many industries,” Kelly testified.
Kelly and his organization are urging the Senate and Assembly to approve “concurrent resolutions…to void these regulations.”
“Alternatively, the State should use the next 120 days to work collaboratively on statutory remedies that allow these rules to be interpreted in a way that acknowledges the realities of the modern gig economy and does not infringe upon legitimate independent contractors and their right to maintain that status,” Kelly said in his testimony.
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