On January 20, 2020, New Jersey Governor Phil Murphy signed into law six bills geared toward protecting self-employed workers. The “Misclassification Package” to which the new laws are referred, expands the Department of Labor (DOL)’s compliance and enforcement tools, and creates new penalties for employers that misclassify their workers as independent contractors instead of employees. This new legislation has been enacted in the wake of a recommendation from the Task Force on Employee Misclassification, which was established by an executive order signed by Governor Murphy in May 2018.
The Misclassification Package includes the following laws, which are summarized below.
- A5838 – Stop-Work Orders. Pursuant to A5838, the DOL Commissioner is authorized to issue stop-work orders against employers where any State wage, benefit or employment tax law violation is found pursuant to an audit or investigation. Procedurally, the Commissioner is required to serve notice of intent to issue the stop-work order at least seven days before the order is issued. Once in effect, the stop-work order requires cessation of all business operations, and remains in effect until the Commissioner determines that the employer has come into compliance and has paid any penalties, or the Commissioner finds in a hearing that the employer did not commit the act on which the order was based. Employers that operate in violation of a stop-work order are subject to a civil penalty of $5,000 per day.
- A5839 – Penalties for Misclassification of Employees. A5839 grants the Commissioner the power to assess penalties against employers upon a finding that the employer has misclassified employees. The Commissioner may assess an administrative penalty up to $250 per misclassified employee for the first violation, and up to $1,000 per misclassified employee for subsequent violations. The administrative penalty can only be assessed if the alleged violator received notice of the alleged violation and was given the opportunity to request a hearing before the Commissioner. In addition, the Commissioner can authorize a penalty of up to 5% of the worker’s gross earnings over the past twelve months. Employers should note that the penalties authorized pursuant to this law can be assessed in addition to penalties provided by any other law.
- A5840 – Joint Liability for Employers and Staffing Agencies. Pursuant to A5840, employers and staffing agencies are jointly and severally liable for violations of the state’s wage and hour laws and state employer tax laws. These provisions cannot be waived. This law also provides for individual liability for owners, directors, officers and managers of the employer for their involvement in misclassifying workers.
- A5841 – The DOL’s Online List. A5841 allows the DOL to post (after consideration of certain listed factors) on its website the name of any person (defined to include a company officer or principal, firm, association, corporation, contractor or subcontractor), who has been found to violate State wage, benefit, and tax laws, and against whom a final order has been issued by the Commissioner (or other appropriate agency head) for any such violation. The DOL is required to provide notice of its intent to post, within 15 business days of posting, and any person receiving such notice, may request a hearing within 20 days of receiving notice. Significantly, a person placed on the list is prohibited from contracting with a public body until the violations of state wage, benefit, and tax laws have been resolved to the satisfaction of the Commissioner.
- A5842 – Data Sharing. A5842 grants the Commissioner access to otherwise confidential tax information, including employers’ tax information, statements, reports, audit files, returns or reports in connection with investigations into violations of any state wage, benefit and/or tax laws.
- A5843 – Notice Posting Requirement. A5843 requires that employers conspicuously post a notice regarding employee misclassification. The notice must explain: (1) prohibitions against employers misclassifying employees; (2) the standards applied to determine whether a worker is an employee or an independent contractor; (3) the benefits and protections to which an employee is entitled under State wage, benefit, and tax laws; (4) the remedies under New Jersey law to which workers affected by misclassification may be entitled; and (5) information on how a worker (or a worker’s authorized representative) may contact a representative of the Commissioner to provide information to, or file a complaint regarding possible worker misclassification. Violation of this section can result in a fine between $100 and $1,000. The law also contains robust anti-retaliation provisions. Any worker terminated in retaliation for protected conduct is entitled to reinstatement plus back pay, legal fees, and punitive damages equal to two times the lost wages and benefits.
Also of note, the most controversial bill, S4204, which would have restructured the “ABC test” recognized by the New Jersey Supreme Court as the test to distinguish between employees and independent contractors, did not make it to Governor Murphy’s desk. The bill would have expanded the definition of “employee” in New Jersey.
New Jersey employers should review their existing policies and practices to ensure compliance with the requirements of the new laws to avoid the steep penalties that may be imposed under such legislation. Employers should act promptly, as five of the six new laws went into effect on January 20, 2020. The remaining law, the Notice Posting Requirement, will take effect on April 1, 2020. Finally, employers should be cognizant of the ongoing legislative activity surrounding the potential change in the definition of an independent contractor, so that if new legislation is passed, employers will be ready to make proactive adjustments to their operations.
If you have any questions regarding this blog, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.