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NJ DOL Issues Proposed Rules on ABC Test for Independent Contractors

Written By:
Kelly L. McNaughton

Adam Busler

Fox Rothschild

 

The New Jersey Department of Labor and Workforce Development (DOL) announced proposed regulations that purportedly clarify the so-called “ABC test” for determining whether workers should be classified as employees or independent contractors in New Jersey. These regulations reflect the DOL’s interpretation of a compilation of caselaw from the New Jersey Supreme Court, including Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor and East Bay Drywall, LLC v. Dept of Labor and Workforce Development.

The proposed regulations interpret N.J.S.A. which sets forth the three-pronged ABC test. Under the ABC test, the putative employer bears the burden to prove that the individual they have contracted with is truly an independent contractor or should have been classified as an employee. Additionally, the ABC test is to be read and applied in the conjunctive; meaning that the putative employer must meet all three prongs in order for the individual to be considered an independent contractor rather than an employee.

Prong A focuses on establishing that the employer does not exercise control over the contractor, although the proposed regulations make clear that it goes beyond exercising control. The employer must not even “reserve the right to control or direct the individual’s work,” and even some control could be enough to fail the ABC test. The regulations provide a nonexhaustive list of factors that may be considered to determine whether the putative employer exercises control, including:

  • Who sets the hours of work.
  • Whether the putative employer controls the “details and means of employment (including requiring specific tools or supplies, requiring uniforms, requiring the individual to use a specific digital application or software controlled by the employer).
  • Whether the services must be rendered personally by the individual.
  • Whether the services are negotiated for.
  • Whether the individual’s rate of pay is fixed by the putative employer.
  • Whether the individual bears any risk of loss.
  • Whether the individual is required to be on call, or otherwise available at set times to perform services.
  • Whether the putative employer limits the individual’s ability to perform work for other parties.
  • Whether the individual is provided training by the putative employer.

According to the proposed regulations, the above list of factors is not exhaustive, should not be used as a checklist, and there is no specific number of factors that are determinative.

Prong B focuses on whether the services that the individual is performing are outside the employer’s usual course of business or that such services are outside of all the employer’s places of business. The regulations provide examples of services that are outside the putative employer’s usual course of business, such as: a dentist engaging a cleaning person to clean the office, a restaurant engaging a musician to perform at the restaurant and a law firm engaging a landscaper to work outside their building.

Perhaps more importantly, the proposed regulations also provide examples of what is likely to be deemed not outside the putative employer’s usual scope of business. These examples include: a transportation network company (e.g., Uber or Lyft) engaging a driver to transport customers, a drywall installation company engaging a drywall installer and a country club engaging a golf caddie to work on its golf course.

The DOL proposed further provide examples of what will be considered a location where an “integral part” of an employer’s business is conducted, and it could include a private residence where installation work or remote work of any kind is occurring, or a truck, airplane or vehicle for transportation companies. The examples given in the proposed regulation far exceed what employers would generally consider their place of business.

Prong C requires the putative employer to establish that the individual is “customarily engaged in an independently established trade, occupation, profession or business” using the following factors:

  • Duration, strength and viability of the individual’s business.
  • The number of customers the individual has.
  • The amount of remuneration the individual receives from the putative employer compared to others.
  • The number of employees in the individual’s business.
  • The individual’s investment in their tools.
  • Whether the individual sets their own rate of pay.
  • Whether the individual advertises, maintains a visible business location and is available to work in the market.

The proposed regulations state that having multiple employers does not equate to an individual having an independently established trade, occupation or profession, and neither does licensure in a specific occupation. Notably, the regulations state that paying an individual by IRS Form 1099 versus an IRS Form W2 does not “transform” an individual into an independent contractor.

These proposed regulations are subject to a 60-day comment period ending on Monday, July 7, 2025. The proposed regulations codify the DOL’s disdain for independent contractors in the State of New Jersey. Anyone who uses independent contractors in their business must be prepared to face a DOL audit and be able to demonstrate the rigorous requirements of the ABC test to avoid potential fines, penalties and interest. Employers with questions about the classification of individuals performing services for them should seek legal counsel to assist them in navigating the ABC test.

For more information, please contact  Kelly L. McNaughton at kmcnaughton@foxrothschild.com, Adam Busler at abusler@foxrothschild.com or another member of the firm's Labor & Employment Department.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the author(s) and not necessarily this law firm or its clients. Prior results do not guarantee a similar outcome.

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