Know Your ABC’s: New Jersey SB 4202 Has Big Implications for Independent Contractors

The distinction between employees and independent contractors for purposes of the New Jersey state wage and hour laws is already the subject of some confusion for employers and workers alike.  However, a new bill winding through the New Jersey legislature promises not only to add to the confusion, but upend some industries.

SB 4202, sponsored by Sen. Stephen Sweeney, was introduced on November 7, 2019 and referred to the Senate Labor Committee for review.  The bill seeks to alter the definition of an independent contractor under the NJ Wage and Hour Law and the NJ Wage Payment Act.

Presently, the wage and hour laws rely on the “ABC” test to determine which workers are independent contractors and which are employees (and thereby entitled to minimum wage, overtime, benefits, and other protections).  As adopted by the New Jersey Supreme Court in Hargrove v. Sleepy’s, LLC, the ABC test states that an individual hired by an entity to provide services for compensation is an employee and not an independent contractor, unless the entity can show:

A: The individual is free from the entity’s control or direction over how the individual performs the service;

B: The services provided are either outside the usual course of the entity’s business (for instance, nightly cleaning services provided for a bank); OR performed outside of all the entity’s places of business; and

C: The individual is customarily engaged in an independently-established trade, occupation, profession or business. 

An entity has to establish all three of these elements – fail to show any one of them, and the individual is classified as an employee.  This is so even if the individual and the hiring entity enter into a contract specifying that the individual is an independent contractor. 

Impact of SB 4202

Sen. Sweeney’s bill would revise prong “B” of the ABC test to eliminate the “OR” option.  In other words, hiring entities could no longer point to the fact that an individual performs his or her work off-site and away from all the entity’s places of business as proof that the individual is not an employee.  

In this regard, SB 4202 aims to codify the same standard set by the California Supreme Court in its 2018 decision, Dynamex Operations W., Inc. v. Super. Ct..  This new standard was seen by many legal analysts as necessary to give vulnerable “gig economy” workers – such as delivery and chauffeur drivers – the same wage protections as employees. 

However, if where an individual performs paid work is irrelevant, then the only way to prove an independent contract relationship is to show that the work the individual performs is different from and “outside” the hiring entity’s normal business activities.  This is a difficult hurdle if an individual’s work involves providing content, tech or other support for an entity.

For example, what does SB 4202’s standard mean for:

• Freelance journalists who research and write stories off-site for publishers?
• Freelance marketing professionals who create and distribute promotional materials off-site, in furtherance of the hiring entity’s business?
• A freelance coder who creates and maintain systems for a bank client from the comfort of home?

At this point in time, the answer is unclear.  While California is resolving these questions in the courts and via new legislative proposals, it remains to be seen whether New Jersey will follow suit.  Independent contractors and employees alike would do well to track SB 4202’s progress over the coming months.