New Jersey to Penalize Employers That Misclassify Employees as Contractors

Since taking office, New Jersey Gov. Phil Murphy has prioritized eliminating misclassification of employees as independent contractors. In furtherance of this goal, on July 8, Murphy signed four bills into law which make it easier for the state to (i) identify employers who misclassify employees as independent contractors, and (ii) penalize employers for such misclassification. Highlights from each of these four laws are summarized below.

A-5890/S3920: Stop work orders and injunctions. The law authorizes the Commissioner of Labor and Workforce Development to impose penalties and administrative constraints on employers through litigation. Notably, the law expands the authority of the commissioner to issue stop-work orders for businesses found to be violating wage, benefit, and tax laws.  Significantly, workers affected by stop-work orders must be paid by their employer for the first ten (10) days of work lost because of the stop-work order.  If an employer fails to pay wages owed, the commissioner may assess a penalty of $5,000 per day for each day that the employer conducts business that is in violation of the stop-work order. 

Additionally, the law permits the commissioner to file suit in New Jersey Superior Court and seek an immediate injunction to prevent ongoing violations of wage, benefit and tax laws.  If successful, the commission can recover reasonable attorneys' fees, as well as litigation and investigation costs.  This law went into effect on July 8.

A-5891/S-392: Creation of the Office of Strategic Enforcement and Compliance. This law creates the "Office of Strategic Enforcement and Compliance" in the Department of Labor and Workforce Development. This office is responsible for overseeing and coordinating across the divisions of the department and other state agencies and entities, the enforcement of wage, benefit and tax laws. This law went into effect on July 8.

A-5892/S-3922: Violation of New Jersey Insurance Fraud Prevention Act to misclassify employees in order to evade insurance premium payments. The law makes misclassifying employees as independent contractors to evade insurance premium payments a violation of the New Jersey Insurance Fraud Prevention Act (NJIFA). Employers who "purposely" or "knowingly" misclassify employees under the NJIFPA may be subject to penalties for fraud that include fines starting at $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation.  This law goes into effect on Jan. 1, 2022.

A-1171/S-1260: Creation of statewide database of payroll information for public works projects. The law requires the commissioner to create a statewide database of certified payroll information for public works projects. The database must be accessible to the public on the Department of Labor and Workforce Development's website. This law goes into effect on Jan. 1, 2022.

In light of this recent legislation, New Jersey employers should review, and update as necessary, their handbooks, policies and independent contractor agreements to ensure compliance.

James Hays, Sean Kirby and Jamie Moelis are attorneys with Sheppard Mullin in New York City. © 2021 Sheppard Mullin. All rights reserved. Reposted with permission.