Controversial NJ independent contractor test regulations take effect

New regulations interpreting a test the state uses to weigh whether a worker is an employee or an independent contractor went into effect Thursday over the objections of business groups and New Jersey’s Senate president.

The department has said the new regulations codify decades of case law governing the three-pronged ABC test, while business groups and some lawmakers have worried it would change some workers’ classifications.

“This is a rule that simply puts into place, simply codifies the rules and regulations that are already in place, the court decisions, what we’re acting under. If you are an independent contractor today, you will be an independent contractor tomorrow,” Gov. Mikie Sherrill (D) said on News12 New Jersey Wednesday.

The test was set in statute when New Jersey adopted its Unemployment Compensation Law in 1936 and has remained largely unchanged since.

The new regulations do not alter the test’s three prongs, which measure whether a worker is free from their employer’s control, whether the service they perform lies outside of the employer’s usual course of business, and whether the worker is independently engaged in trade. A worker is an employee unless they meet all three of the prongs.

Some lawmakers had expressed frustration with the regulations as they advanced legislation to exempt certain professions from the test at the urging of industry officials who said the rules make their employment classification uncertain.

Michelle Siekerka, president and CEO of the New Jersey Business and Industry Association, said the new regulations leave an “overly broad” interpretation of the ABC framework in place that represents an unnecessary  hit on New Jersey businesses.

“The result is a system that picks winners and losers. Those with the resources and access to secure a legislative exemption may be protected, while independent contractors and small businesses without a seat at the table are left to pursue their entrepreneurial goals under continued legal and regulatory uncertainty,” Siekerka said.

Senate President Nicholas Scutari (D-Union) had urged Sherrill to further delay the rule’s effective date until July 1, 2027. The rule was adopted in May, but its effective date was already deferred until Oct. 1.

Scutari declined comment through a spokesperson. Sherrill said she is willing to approve legislation exempting some professions from the test.

“If there are areas where it has somehow swept people into its ambit who should not be there, then I am more than happy to work with the Legislature on specific carveouts for those groups,” she said on News12.