NJDOL Report Forecasts Aggressive Enforcement Action On Independent Contractor Misclassification

The New Jersey Department of Labor and Workforce Development earlier this month released the report of the Governor’s Task Force on Employee Misclassification. The Governor’s Task Force was assembled over one year ago to make recommendations on how the State can prevent employee misclassification. The newly-released report puts New Jersey employers on notice of promised escalation in DOL enforcement. 

The report presents misclassification as a widespread evil which harms employees, the State, and even children entitled to receive child support from the allegedly misclassified employees. Construction, janitorial services, home care, transportation and trucking and delivery services are identified as industries most commonly affected by alleged misclassification, the report concludes. The report lists several recommendations in its battle against misclassification, which serve mainly to identify and punish employers found to be engaged in misclassification.

Noticeably absent from the report is any recognition of widespread business trends that embrace the use of IRS Form 1099 Independent Contractors. Instead the Report makes clear that all New Jersey employers will be held to the rigid “ABC” test instead of the more flexible IRS 20 factor test. Rather than acknowledge the prevalence of independent contractors in today’s business world, the NJDOL has signaled it intends to accelerate its already aggressive attack against the independent contractor model – even where legitimate under IRS rules.

The enforcement initiatives put forth by the Task Force include:

1.   Targeted Education and Public Outreach, which includes creating a hotline, webpage, and email address to report misclassification, requiring employers to post notices alerting workers to the issue, and raising public awareness through press strategy.
2 .    Strengthening State Contracting by requiring entities that contract with the state or receive state funding to confirm that they are aware of the legal standard for proper classification of workers based on the ABC test, with potential loss of funding or contract termination if misclassification is found.

3.    Interagency Coordinated Enforcement by conducting on-the-ground investigations and joint enforcement sweeps with multiple agencies, working together to elicit facts and obtain information using each agency’s jurisdictional knowledge and expertise.
4.     Data Sharing between multiple state and federal agencies.

5.     Cooperation with Neighboring States to share information to assist in investigations.

6.    Cross-Training for field investigators from various state and local agencies.
7 .     Criminal Referrals of cases of alleged misclassification.
8 . Use of Existing Workers' Compensation Laws to bolster misclassification enforcement.
9 .      Invoking the NJDOL’s Power to Revoke and Suspend Licenses to deter employers from using anything other than the employer-employee model.

The Task Force also advocated for legislation that:

·    Requires public posting of notices re: misclassification;
·    Gives the DOL the ability to issue stop-work orders;
·   Grants the DOL the same access to tax information as other Cabinet agencies;
·     Imposes liability on employers who rely on companies that misclassify in their supply chain, in subcontracts, or other contracts where a joint employment relationship is established;
·    Imposes liability on business owners and successor entities that misclassify;
· Requires companies found to misclassify to fund the investigatory costs and any attorney's fees incurred; and
·      Increases fines and penalties.

This report comes shortly after S1790, New Jersey’s new Anti-Wage Theft Act, was passed by the General Assembly and sent to the Governor. If signed, this bill would drastically increase the penalties for employer’s who are found to have misclassified employees and make New Jersey one of the most aggressive in the nation for wage and hour enforcement.
The Labor and Employment Practice at Genova Burns urges New Jersey employers having any potential “grey area” 1099/Independent Contractor relationships to proactively audit such for compliance with the NJDOL’s strict standard.

For more information, contact:
James M. Burns, Esq., (973) 535-7101 or email jburns@genovaburns.com
John R. Vreeland, Esq., (973) 535-7118 or email jvreeland@genovaburns.com