New Jersey Proposes Codifying ABC Test, Tightening Contractor Classification

What happened?

On April 3, 2025, the New Jersey Department of Labor and Workforce Development (NJDOL) proposed new rules under N.J.A.C. 12:11 to clarify how the ABC test is applied when determining whether a worker is an employee or an independent contractor. The rules aim to codify existing case law and increase clarity for employers but may also make it more difficult to classify workers as independent contractors.

Overview:

Background: The ABC test requires that all three of the following conditions be met:

• (A) The worker is free from control or direction.
• (B) The work is performed outside the usual course or location of the business; and
• (C) The worker is engaged in an independently established business.

The proposed rules provide detailed guidance for interpreting each prong, including specific factors to assess control, business location, and independence. They reflect the NJDOL’s ongoing efforts to prevent worker misclassification while recognizing legitimate independent contractor relationships. A public comment period is open through August 6, 2025.

Recommendations:

• Review current worker classifications under the updated guidance.

• Examine contractor agreements and work practices to ensure they meet all three prongs of the ABC test.

• Submit comments to the NJDOL if they believe the proposed rules could have unintended effects on their industry; and

Additional Information:

Although the proposed regulations do not carry the force of law until adopted, they provide important insight into how the NJDOL will approach enforcement going forward.

• While the NJDOL states the rules are based on court interpretations of the ABC test, they appear to expand upon existing case law and statutory language.

If adopted in their current form, the rules could significantly impact how New Jersey employers operate, particularly those that rely on independent contractors. The NJDOL is expected to continue robust enforcement, including audits and penalties for misclassification, including:

• Fines of up to $250 per worker for a first violation and $1,000 per worker for subsequent violations.

• Up to 5% of gross earnings per worker for the past 12 months.

• Stop-work orders for non-compliant businesses.

Source References

• New Jersey Press Release – Proposed ABC Test

This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.