New Jersey may adopt new worker-friendly regulations for determining whether a worker is an independent contractor or employee that could make it very difficult for businesses to demonstrate that workers are independent contractors and open the door to additional liability for misclassification.

Quick Hits

• New Jersey will consider new regulations that could significantly limit the classification of workers as independent contractors by clarifying the state’s “ABC test” for determining employment status. 
• The proposed rules aim to define the control, independence, and business engagement of workers, raising concerns among business groups about increased liability for misclassification. 
• The proposed regulations will have a sixty-day public comment period, which began on May 5, 2025.

On April 28, 2025, the New Jersey Department of Labor and Workforce Development (NJDOL) unveiled a notice of proposal for new rules under N.J.A.C. 12:11 to clarify the application of the state’s “ABC test” for determining independent contractor status. The notice was formally published in the New Jersey Register on May 5, 2025, kicking off a sixty-day public comment period. 

The NJDOL’s new proposed rules aim to codify the interpretation of the ABC test by the  Supreme Court of New Jersey in multiple decisions concerning the test’s prongs. The three-prong test is used to determine if a worker is an employee or an independent contractor under various New Jersey laws, including the Unemployment Compensation Law, Temporary Disability Benefits Law, Wage and Hour Law, Wage Payment Law, and Earned Sick Leave Law.

While the rules are intended to provide clear guidance to employers, business groups have concerns that codifying these interpretations will make it very difficult for businesses to classify workers as independent contractors, even if such workers were previously classified as such.

In announcing the proposed regulations, New Jersey Labor Commissioner Robert Asaro-Angelo touted the regulations as a “critical step” in preventing the “illegal misclassification of employees.”

“Not only would these new rules protect workers’ rights, but they would also ensure that bona fide independent contractors understand what makes them independent contractors, rather than employees, so that they can continue to operate with autonomy,” Commissioner Asaro-Angelo said in a statement.

Proposed Changes

The ABC test uses three prongs: (A) the degree of control the hirer has over the worker; (B) the worker’s independence or degree to which work is performed outside of the usual course of business or outside the business’s location; and (C) the worker’s engagement in an independently established trade, occupation, profession, or business. The proposed regulations would clarify factors for interpreting each prong.

Prong A

The proposed rule would clarify that an employer must establish that it does not exercise control over a worker and does not retain the right to control the manner or means of the work. The rule includes a nonexhaustive list of nine factors to consider the degree of control, including whether:

1. the individual has set hours;
2. the putative employer controls the “details and means by which the services are performed by the individual”;
3. the services are provided personally;
4. the putative employer negotiates for the work of the individual;
5. the individual has a fixed rate of pay;
6. the individual bears any risk of loss;
7. the individual is required to be on call or available to perform services at times set by the putative employer;
8. the putative employer restricts the individual’s work for other parties; and
9. the putative employer provides training.

Finally, the proposal would confirm that when evaluating whether an employer has control over an individual, employers may not use the fact that they reserved the right to exercise control to comply with any other law or regulation as a reason to avoid classifying the individual as an employee. The reason for reserving the right to exercise control would be given the same weight as any other control the employer has reserved or exercised, and will be seen as proof of an employment relationship. 

Prong B

The proposed rules would clarify that when evaluating whether a worker has performed work outside of regular business or outside the business’s physical location, a business’s “place of business” refers to where the business has a physical plant or conducts integral parts of its business, including potentially a customer’s residence. The NJDOL explained that “the residence or place of business of the putative employer’s customer” would be considered “among the putative employer’s places of business” when “(1) a service is performed by the worker at the residence or place of business of the putative employer’s customer; and (2) the service performed by the worker is an essential component of the putative employer’s business.”

Prong C

The proposed regulations include a nonexhaustive list of seven factors to determine independence, including the number of customers and volume of business from each customer, whether individuals set their rate of pay, duration strength, and the viability of business independent of the putative employer. The proposed regulations would clarify that receipt of unemployment benefits is irrelevant to Prong C analysis, and proof of license, business registration, or insurance information without more is also insufficient to show independence.

Next Steps

The proposal is the latest attempt in New Jersey to expand the independent contractor test since California established its ABC test in 2019. The prior proposals failed to gain traction. However, Governor Phil Murphy has successfully signed other bills strengthening laws against misclassification and has been making a push to broaden the scope of the ABC test for employees. New Jersey courts have similarly interpreted the ABC test to classify more workers as employees. It is anticipated that the proposed regulations will be finalized in some form.

Further, the proposed independent contractor regulations follow the NJDOL’s September 2024 finalization of regulations implementing New Jersey’s Temporary Workers Bill of Rights (TWBR) law, which enhanced protections for temporary workers and equalized their compensation with permanent employees.

The U.S. Department of Labor (DOL) issued a new independent contractor rule in 2024, which took effect in March 2024. The DOL rule adopted a more intensive totality of circumstances test to classify an independent contractor. However, the Trump administration has indicated that it may reconsider the 2024 rule and issue a new one.