N.J. calls for wider employee misclassification enforcement

A task force in New Jersey is calling for state regulators to utilize existing workers compensation laws regarding safety and insurance requirements to bolster employee misclassification enforcement, according to a report released Tuesday.

Gov. Phil Murphy in 2018 issued an executive order establishing a Misclassification Task Force to examine the problem of employee misclassification, which has grown 40% over the past decade, the report states, highlighting that in 2018 alone 12,315 workers in New Jersey were misclassified as independent contractors.

Businesses that misclassify workers are able to forgo paying employment taxes, unemployment insurance, and workers compensation, the report states. Businesses also skip workplace safety requirements set by the U.S. Occupational Safety and Health Administration by misclassifying workers, the task force found.

The task force revealed a number of recommendations to tackle the issue, including creating a hotline, webpage and email address to report misclassification and requiring employers to post notices alerting workers to the issue and their rights.

The report highlights workplace safety as “one of the most serious threats misclassified workers face.”

“In addition to not being covered by OSHA, employees who are misclassified as independent contractors are often not covered by workers’ compensation,” the report states, recommending that existing comp laws requiring coverage for employee would make employers criminally liable for misclassifying workers and fined up to $5,000 for the first 10 days of noncompliance and up to $5,000 for every 10-day period thereafter.

State law also permits the state Division of Workers’ Compensation to issue a stop-work order requiring the cessation of all business operations, the report states, adding that “although the aforementioned laws were enacted in 2009, they have not been used to address misclassification.”

The report also calls for the state to require state contractors to confirm that they are aware of the legal standard for proper classification of workers.

New Jersey law adheres to the “ABC test” for whether an employee is a contractor, the report highlights. The three-pronged test states that an individual is a contractor if: “(A) Such individual has been and will continue to be free from control or direction of the performance of such service, but under his or her contract of service and in fact; (B) Such service is either outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and (C) such an individual is customarily engaged in an independently established trade, occupation, profession or business.”