New Jersey Worker Misclassification Law Enforcement Underway
On July 8, 2021, Governor Murphy signed four bills dealing with misclassifying workers, increasing penalties, and enforcing the law against companies that falsely classify workers as independent contractors. These laws amend and expand on the worker misclassification laws previously enacted in January 2020, which we addressed in our previous alert (the âJanuary 2020 lawsâ). The January 2020 laws strengthened the accountability of managers, making them jointly and severally liable for wage violations, and made posting violations and retaliation for misclassification complaints a disorderly persons offense. In addition, these laws created new administrative requirements, authorized “stop work orders”, granted wage arrears to poorly classified workers up to 5% of their gross earnings from the previous year and increased fines. to $ 250 per employee for a first violation and up to $ 1,000 per employee for subsequent violations involving misclassification of workers (and notably, outside of potential penalties for failing to properly withhold payroll taxes). However, given the pandemic, enforcement of the January 2020 laws has largely stagnated. Collectively, past and current laws demonstrate New Jersey’s renewed attention and expansion of resources, enforcement powers, and penalties to support the state’s efforts to address worker misclassification. Indeed, the state’s emphasis on the proper classification of workers is not surprising as such measures generate much needed income in the form of payroll taxes.
Who is an “employee” in New Jersey?
Under the “ABC test” codified in the New Jersey Unemployment Compensation Act, workers are properly classified as “employees” if each part of the test below is met. However, the ABC test is applied restrictively and workers are generally presumed to be employees, unless the employer can establish all three streams.
The individual has been and will continue to be free from any control or direction over the performance of such service, both by virtue of his contract of service and in fact; and
Such a service is either outside the usual course of the business for which such a service is performed, or such a service is performed outside all places of business of the business for which such a service is performed. ; and
This person is usually engaged in an independently established trade, occupation, profession or business.
Highlights of the latest New Jersey worker misclassification bills
Effective immediately, House Bill 5891 created the Office of Strategic Enforcement and Compliance to oversee the enforcement of New Jersey’s payroll, benefits, and tax laws. The bill has allocated $ 1,000,000 for this effort. If a company requests direct commercial aid from the State, this company must be in good standing, that is to say that it cannot be liable for any sum due in respect of unemployment or disability contributions, or a final injunction to pay wages.
Assembly Bill 5892, which entered into force on January 1, 2022, streamlines the identification of employee classification errors. It essentially treats the misclassification of employees as potential insurance fraud. In the relevant part, the bill provides that any âperson, organization or companyâ who âintentionally or knowinglyâ misclassifies its workers in order to evade full payment of employee-related benefits or insurance premiums the New Jersey Insurance Fraud Prevention Act.
The Commissioner for Labor and Workforce Development (the “Commissioner”) is authorized to seek sanctions in a civil action as well as to impose civil and administrative sanctions as compensation on an insurance company or to a person who has suffered a loss as a result of a violation to act as follows:
No more than $ 5,000 for the first offense
No more than $ 10,000 for the second offense
No more than $ 15,000 for each subsequent violation
In addition, the Commissioner may request the Office of the Insurance Fraud Attorney to consider initiating criminal proceedings against the offenders. Although the law does not prohibit those allegedly guilty of breaking the law from entering into a settlement with the payment of a civil fine, the licensing authorities can still request administrative action, even in the presence of a civil fine. of a consent agreement.
Assembly Bill 5890, which also came into force immediately on July 8, 2021, deals with the enforcement of worker misclassification and work stoppage orders. Under this statute, the commissioner can issue stop work orders on his initial determination or following an audit that reveals a violation of New Jersey wages, benefits or taxation law. These ordinances grant broad authority to stop work at work sites and company premises, not just where violations have been found. Workers have the right to pay for the first ten days of lost work due to a permanent stop work order.
Failure to cooperate with the Commissioner’s investigations, as well as the law in general, has serious ramifications. Failure to provide the information requested in the Commissioner’s subpoena or obstruct the investigation may result in a fine of $ 1,000 per day and is considered a disorderly persons offense. Obstructing or delaying law enforcement, failing to keep required records, tampering with records or refusing to make records available or provide requested information as well as non-payment of appropriate salaries under this law can also result in a prison sentence of between 10 and 90 days.
Finally, Assembly Bill 1171 establishes a publicly accessible database of certified payroll information for public works projects. This database includes offers from contractors and subcontractors in which retention information for employees must be provided.
Key points to remember
Independent contractor (or consultant) agreements should not be relied on to establish contractor status and are generally only indicative of the intention of the parties. In addition to the penalties associated with these laws, we expect there will be significant penalties for unpaid (and unsuccessful) payroll taxes from federal and state tax authorities. As such, we urge New Jersey employers to review the classification status of workers now to ensure workers are properly classified and to implement any necessary conversions to employee status. It is best to implement such changes proactively and before enforcement action.
Â© Copyright 2021 Sills Cummis & Gross PCRevue nationale de droit, volume XI, number 193