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New Jersey Proposes Strict ABC Test for Classifying Independent Contractors

Published by and on December 17, 2019

The New Jersey legislature introduced S4204, which would adopt a strict ABC test for independent contractors.

On November 7, 2019, the New Jersey legislature recently proposed S4204, which would codify a strict form of what is known as the “ABC test” to determine if a worker is an independent contractor versus an employee. The ABC test derives its name from its three prongs, A, B, and C.

Under the current New Jersey ABC test, a worker is considered an employee unless:

  • A: The individual is free from control or direction over the performance of services;
  • B: 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
  • C: The individual is customarily engaged in an independently established trade, occupation, profession, or business.

S4204 would codify the following proposed ABC test (text may be found here):

  • A: The individual has been and will continue to be free from control or direction over the performance of the service, both under the individual’s contract of service and in fact; and
  • B: The individual’s service is outside the usual course of the business for which that service is performed; and
  • C: The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the work performed.

S4204 modifies the requirements of prong “B” by eliminating “service is performed outside of all the places of the business of the enterprise for which it is performed.” Therefore, companies will only be able to classify workers as independent contractors if they can show that the services provided by the worker are outside the usual course of the business for which it is performed. Furthermore, S4204 proposes adding the requirement to prong “C” that the worker must provide the company with the same type of service the worker provides in the worker’s profession or trade.

By adding these additional requirements to the current ABC test, S4204 will make it more difficult for companies to classify workers as independent contractors. For example, prong B’s requirement that service must be outside the usual course of business for which it is performed will make it difficult for companies that depend on independent contractors for core business needs, such as business that rely heavily on the gig economy.

The new version of the ABC test will apply to the state’s unemployment law, Wage and Hour Law, Wage Payment Law, and other contexts. In California, companies successfully lobbied legislators to include a number of exceptions for certain industries and professions, which could occur in the New Jersey context.

Welter Insight

New Jersey companies that hire and use independent contractors should be aware of and monitor this proposed legislation. If and when the New Jersey legislature likely passes S4204, or some version of the bill, companies may have to reevaluate their worker classifications to comply with the new law.

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