New Jersey Senate lawmakers took nearly four hours of testimony on Monday that could decide the future of new state rules regarding a state test that measures whether a worker is an independent contractor or an employee entitled to certain benefits.
Business groups and some freelancers insisted to the Senate’s labor committee that the rules would limit workers’ flexibility and drive up costs, while union officials said they are needed to prevent abuses that could deprive workers of benefits and saddle taxpayers with costs that should be borne by employers.
Acting Labor Commissioner Kevin Jarvis told the panel that the rules, adopted last week and set to take effect in October, have not changed the landscape but merely codified in regulation decades of court and agency decisions that already informed the Department of Labor’s misclassification investigations and its use of the ABC test.
“The rules do not change the law or the test,” Jarvis told the panel. “The analysis performed as part of the ABC test is no different since we adopted the regulations than it was before, meaning what was in place on May 4th remained in place on May 5th. The only thing we did was codify 90 years of case law and final agency decisions.”
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State labor officials for years have argued that some businesses misclassified workers as independent contractors to avoid giving them benefits required by law.
The three-pronged ABC test measures whether a worker is free from their employers’ control, performs work outside a firm’s regular course or place of business, and engages in business independent of a given firm. A worker is an employee unless they meet all three of the test’s prongs.
Business groups and freelancers argued the regulations would thrust workers into an uncertain regulatory environment. While the rules include a list of factors related to each of the three prongs — for example, regulators might ask if a worker classed as an independent contractor employs others to see if they meet the third prong — those lists are not exhaustive, they noted.
“New Jersey’s labor department says it may consider some factors in one case but not in another case, so who knows what matters?” said Kim Kavin, a freelance writer long opposed to ABC regulations. “The department says it may consider factors that aren’t listed anywhere.”
Union officials were supportive of the adoption, saying the rules would boost protections for workers. They argued employees could be granted the same flexibility sought by independent contractors and that resistance to the rules is driven by a profit motive rather than concerns about scheduling or financial viability.
“There is no prohibition against businesses offering workers the same exact scheduling flexibility they enjoy as independent contractors,” said Eric Richard, legislative affairs coordinator for the New Jersey AFL-CIO.
The rules’ adoption did not change the test, and industries and workers already exempt from unemployment and other requirements applied to most employees would continue to be exempt, Jarvis said.
Independent financial planners, for example, do not reach the ABC test because separate law exempts them from unemployment insurance contributions, he said.
“Nothing in the regs changes that,” Jarvis said. “In fact, by law, we couldn’t change that through a regulation, and we added language that expressly states that nothing in these regulations should be construed as altering any statutory exemptions.”
But some other witnesses warned that workers exempt from unemployment contributions could still be ensnared by misclassification investigations under separate laws where no exemption exists.
That was the case for independent securities brokers and insurance agents, said Vince Ryan, regional vice president of state relations at the American Council of Life Insurers. Those workers are exempt from unemployment contributions but are still subject to the state’s wage, hour, and earned sick leave laws.
“As a result, an agent or broker could be treated as an independent contractor for employment purposes but still be deemed an employee under the other labor laws cited in the regulation. Such inconsistency creates confusion and undermines the historical status of financial professionals,” Ryan said.
Others said New Jersey’s misclassification test is simply too strict.
“The underlying problem is that New Jersey’s ABC test, by the department and by the courts, has been interpreted so strictly that it is very hard for people to work independently in the state,” said Alex MacDonald on behalf of the Flex Association, which represents firms like DoorDash and Lyft.
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