New Jersey’s new laws put more teeth in driver classification cases

As New Jersey’s legislature readies another bill this year aimed at worker misclassification, a series of other newly signed laws that give the state greater investigatory and punitive powers poses an even larger risk to motor carriers hiring owner-operators to haul their freight, according to one legal expert.

Last week, state Sen. Steve Sweeney introduced S863. The bill is nearly identical to S4204, which was introduced in November 2019 but failed to pass.

Both bills require New Jersey employers to apply the “ABC” test to determine whether to classify a worker as an independent contractor or as an employee.

In a statement to FreightWaves, Sen. Sweeney said the bill’s aim is to make sure workers are given legal rights on minimum wage, overtime, disability insurance, family leave, and appropriate tax withholding that independent contractors must negotiate on their own.

“The bills that were considered in the Senate and Assembly are unquestionably pro-worker measures that will simply codify into law existing regulations that have been supported by legal decisions,” Sweeney said. “These rights and protections are lost when workers are misclassified as independent contractors.”

Transportation groups including the Association of Bi-State Motor Carriers and the New Jersey Motor Truck Association (NJMTA) sought to defeat the original bill due to the hurdle the ABC test creates for motor carriers in hiring independent contractors.

Although (S4204) failed in the lame duck session, the Senate president has reintroduced it in the new session as Senate Bill S863 and is still committed to moving it,” the NJMTA said in a legislative update.

Along with trucking, other professionals employed as independent contractors and represented by the group Fight for Freelancers lobbied for the bill’s defeat due to the impact on the hiring of freelance professionals. Fight for Freelancers said it will oppose S863.

Sen. Sweeney said he is taking the concerns of these groups seriously, and promises to give them a longer hearing in the current session as opposed to the roughly two-month time slot for debate on S4204.

“We will continue to have meaningful discussions with stakeholders, business leaders and advocates as we seek to produce the fairest and most responsible bill possible,” Sweeney said. “As with all legislation it is far more important that we get it done right than to get it done fast.” 

NJ ramps up misclassification penalties outside of S863

The specter of New Jersey once again trying to codify the ABC test means motor carriers may have to reevaluate how and when they use owner-operators. But other newly enacted legislation makes the use of independent contractors just as risky, according to Sal Simao, the chair of Ford Harrison’s employment and transport practice groups. 

“People were really distracted by S4204,” Simao said. “Everyone was so focused on getting S4204 pulled they lost sight of these other bills that create much more risk for independent contractors.” 

In November, Simao highlighted some of the ancillary bills on employee misclassification that were being debated at the time of S4204.

This week, New Jersey Gov. Phil Murphy signed many of those bills into law, and most take immediate effect.

Simao said these laws give the state labor department “newfound powers” with regard to driver misclassification. While the legislation presents more risk for motor carriers, he cautions that it is still unknown the extent to which the labor department will exercise these powers. 

“The hope is the (labor department) will use them judiciously and eventually issue regulations or guidance as to how this power should be implemented,” Simao said.

Among the new laws are S4228. It allows the state’s treasury to share any tax information with the labor department to assist in an investigation. The previous law limited treasury information sharing to whether a contractor has a valid business license and whether city and county taxes were being assessed.

Simao said the new law gives the department the potential to launch targeted investigations of particular industries, without doing audits of employee rosters. Instead, the labor department will be able to ask the state treasury for the 1099s that were filed and cross reference those with the contractors’ tax returns. 

Based on these tax returns, the labor department may determine whether the contractor had other sources of income to make an initial determination if the contractors were misclassified.

“Historically, investigations were complaint-driven,” Simao said. “Now they are targeting industries they believe are out of compliance, such as trucking. The burden from an unemployment tax perspective is incredibly low.”

New Jersey’s outbound tender volumes have risen through the year. (SONAR: OTVI.NJ)

Another new law, A5838, will allow the labor department to enter or to subpoena a business to get records related to any worker complaints about state wage or tax violations. Businesses that don’t comply with the request will be fined $1,000 per day.

A harsher penalty in A5838 is the ability of the labor department to issue a stop-work order when it makes an initial assessment that there has been a tax or wage-hour violation. Companies that refuse to comply with the stop-work order face a $5,000 per day fine. Simao said employers will have only 72 hours to appeal the order, which can be a problem for out-of-state companies with small satellite offices or any company that doesn’t have immediate access to items left at the work site.

“The labor department must give notice at the location of the violation,” Simao said. “Due to the broad language of the statute, they could show up and give the notice to the receptionist and walk out.”

Employers are limited to seeking an injunction in state court to fight the stop-work order. But Simao said injunctive relief is also a risky bet.

“Getting an injunction is incredibly expensive,” he said. “If the company loses and the judge issues a decision that negatively impacts the underlying case it may cause more harm than good.”

The department will also be able to impose bigger fines on employers that have been found to misclassify workers. Assembly Bill 5839 allows the labor department to impose a “misclassification penalty” of $250 per worker per violation, rising to $1,000 for subsequent violations. Misclassified workers may also receive 5% of gross wages earned during the misclassification period as part of that penalty. 

Simao said those fines can mount up since the labor department may count each work week for each employee as a separate violation. Moreover, the bounty offers an incentive to independent contractors to go along with labor department rulings.

“Motor carriers will need the testimony of independent contractors in order to successfully defend against misclassification, but why would an independent contractor provide testimony for the motor carrier if they will get a pay day if the carrier loses?” Simao said.

Owners that face penalties in misclassification may not be able to use their business entities to shield themselves from those penalties. Another law, A5840, mandates that owners, directors and potentially customers can be held individually liable for the claims.

“Fighting the assessment takes years, is expensive and during this time penalty and interest continue to accrue,” Simao said. “Without testimony from owner operators, who are disincentivized to cooperate it is extremely difficult to win and if you lose the labor department can pursue the individual owner’s personal assets.”