On January 20, 2020, New Jersey Governor Phil Murphy signed into law a package of six measures aimed at “combatting worker misclassification and exploitation.” These new laws, among other things, grant the New Jersey Department of Labor and Workforce Development (NJDOL) stronger compliance and enforcement tools, create additional protections for employees who have been misclassified as independent contractors, and impose harsher penalties for employers found to have misclassified workers. Employers operating in New Jersey should consider promptly revisiting their classification practices.
Misclassification is the practice of improperly classifying workers as independent contractors, rather than employees. The distinction between these categories of workers is critical as employees who are misclassified may be denied access to certain benefits and protections, including minimum wage and overtime protections, paid sick leave, unemployment benefits and workers’ compensation benefits.
Overview of new laws
As reflected below, five of the six new laws immediately went into effect on January 20, 2020; the other takes effect April 1, 2020.
Laws that took effect January 20, 2020
- A5838 (P.L. 2019, c. 372) – Stop-Work Orders. Under this law the NJDOL is authorized to issue stop-work orders upon determining “that an employer is in violations of any State wage, benefit and tax law,” including failure to pay wages required by law and/or employee misclassification. Prior to issuing any such stop-work order, the DOL is required to provide at least seven (7) days advance notice to the employer.An employer can seek injunctive relief to block or remove a stop-work order if the employer can demonstrate that the stop-work order would be, or was, issued in error. Upon receiving a stop-work order, an employer is required to cease all business operations at the location where the violation exists. Stop-work orders will remain effective until further order of the NJDOL Commissioner, and the Commissioner may assess civil penalties of up to $5,000 for each day that a business continues to operate in violation of a stop-work order.
- A5839 (P.L. 2019, c. 373) – Additional Penalties for Misclassification. The NJDOL is authorized to assess additional penalties for employee misclassification, beyond those provided by any other law (including the Wage Theft Act that was just recently enacted in August 2019). Specifically, the NJDOL is permitted to assess an “administrative misclassification penalty” of up to $250 per each misclassified employee for first time violations, and up to $1,000 per misclassified employee for each subsequent violation. The law also provides for a penalty to be paid to the misclassified worker of “not more than 5 percent of the worker’s gross earnings over the past twelve months from the employer who failed to properly classify them.”
- A5840 (P.L. 2019, c. 374) – Joint and Several Liability. A client employer and labor contractor providing workers to that client employer may now be subject to joint and several liability, and share civil legal responsibility, “for any violations of . . . State employer tax laws,” as well as for violations of the state wage and hour laws, including laws regarding misclassification of workers. “State employer tax laws” are defined to include the workers’ compensation law, unemployment compensation law, Temporary Disability Benefits Law, and New Jersey Gross Income Tax Act. In addition, this law explicitly imposes liability on owners, directors, officers, and managers, who violate New Jersey wage or tax laws, on behalf of an employer or a staffing agency.
- S4226 (P.L.2019, c.366) – NJDOL Website Posting. The NJDOL is now permitted to post information of persons who violate state wage, benefit and tax laws on its website. A person whose name is posted on the NJDOL’s website is prohibited from contracting with any public body until the liability for violations has been resolved.
- S4228 (P.L. 2019, c. 367)
– Sharing of Tax Information. This
law significantly expands the categories of otherwise-confidential
tax information the State Division of Taxation may share with the
NJDOL so as to assist with NJDOL investigations. Information
that may now be shared includes tax information statements,
reports, audit files, returns, or reports of any investigation for
the purpose of labor market research or assisting in investigations
pursuant to any state wage, benefit or tax law.
Law that takes effect April 1, 2020
- A5843 (P.L. 2019, c. 375) – Post Notices. Employers are required to post notices about misclassification (including the benefits and protections available to employees and the remedies available under the recently enacted laws) “in a form issued by the [NJDOL].” The law also expressly prohibits retaliation against any “employee” for complaining about, filing an action regarding, or testifying in a proceeding about, worker misclassification. Employers that violate this law will be subject to a fine of not less than $100 nor more than $1,000. When an employer discharges an employee in violation of the anti-retaliation provision, the law requires the violating employer to offer reinstatement to the discharged employee. The law also requires the employer to pay the aggrieved employee for any lost wages and benefits, attorneys’ fees and costs, and punitive damages of up to 200 percent of the lost wages and benefits.
Important considerations for employers
It is critical for New Jersey employers to examine their policies and practices in light of this new legislation. At minimum, employers should ensure they are in compliance with all state wage, benefit and tax laws; confirm that all relevant personnel have been made aware of these new laws and the potential penalties they impose; post the required NJDOL notice regarding misclassification; and implement policies to quickly correct any potential worker misclassifications. In addition, New Jersey employers that utilize labor contractors should consider conducting self-audits to assess any potential joint liability risks, and should also take measures to ensure the contractors with whom they work are in compliance with the state’s wage and tax laws.