Whether an individual is classified as an employee or an independent contractor has significant implications for businesses and workers alike. Which side of the line a worker falls on in the eyes of the law determines a whole host of respective rights and obligations, from the availability of leave, benefits, and legal protections to required contributions to government programs like unemployment compensation. Recently, the New Jersey Department of Labor & Workforce Development (NJDOL) proposed a new regulatory framework for worker classification that would place more contract workers under the employee umbrella.
Codification of the “ABC Test”
Published on May 5, 2025, the proposed new classification rules would codify the “ABC Test” that the department and the New Jersey Supreme Court have used for years to determine whether a particular worker is considered an employee or an independent contractor. The public comment period on the proposed rules, which have drawn vocal opposition from both businesses and contract workers, ended on August 5, 2025. It remains to be seen whether and when NJDOL will adopt the rules in their current form, but they could conceivably be finalized before the end of the year.
As set forth in the proposal, “The new rules would also reflect the statutory dictate… that the putative employer has the burden of proof pursuant to the ABC test to establish that the individual providing the services at issue is an independent contractor” by showing they meet “all three prongs of the ABC test–Prong A, Prong B, and Prong C.”
Prong A: Control Over Worker and Their Performance
Prong A is about how much control the employer exercises – and has the right to exercise – over the worker and the services they provide. In order for a putative employer to meet its burden under Prong A to prove a worker is a contractor and not an employee, it needs to show not only that it has not exercised control, but also that it has not reserved the right to control the individual’s performance. When evaluating under Prong A whether a worker has been, and will continue to be, free from control or direction over the performance of services, the following factors will be considered:
- Whether the individual is required to work any set hours or jobs;
- Whether the putative employer has the right to control the details and means by which the individual performs the services;
- Whether the individual must render the services personally;
- Whether the putative employer negotiates for and acquires the work performed by the individual;
- Whether the putative employer fixes the individual’s rate of pay;
- Whether the individual bears any risk of loss for the work they perform;
- Whether the individual is required to be on call, on standby, or otherwise available to perform services at set times determined by the putative employer, even if the individual does not actually perform services at such times;
- Whether the putative employer limits the individual’s performance of services for other parties, such as by limiting the individual’s geographic area or potential clientele; and
- Whether the putative employer provides training to the individual.
Prong B: Services Performed Outside Regular Course or Place of Business
Prong B considers “whether a service is either outside the usual course of business for which such service is performed” or whether “such service is performed outside of all the places of business of the enterprise for which such service is performed.” Affirmative answers would weigh in favor of contractor status.
Under the proposed rules, an employer’s “place of business” can include the residence or place of business of the putative employer’s customer, or even a vehicle. The proposal specifically uses ride-share drivers as an example, designating ride-share drivers’ vehicles as a “place of business” for the companies they drive for. “Usual course of business” includes all of an employer’s revenue-generating activities as well as its provision of goods or services.
Prong C: Degree of Independence
Prong C involves an evaluation of whether a worker is “customarily engaged in an independently established trade, occupation, profession, or business,” in which case it would be an indication of contractor status. In making this determination, the following factors can be considered:
- The duration, strength, and viability of the individual’s business (independent of the putative employer);
- The number of customers of the individual’s business and the volume of business from each respective customer;
- The amount of remuneration the individual receives from the putative employer compared to the amount of remuneration the individual receives from others in the same industry;
- The number of employees of the individual’s business;
- The extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources;
- Whether the individual sets their own rate of pay; and
- Whether the individual advertises, maintains a visible business location, and is available to work in the relevant market.
As noted, the proposed rules have received a less-than-warm welcome from the business and independent contractor communities, which have asserted that the proposed rules go beyond existing statutes and case law governing worker classification. As discussed in a New Jersey Monitor article, employers are concerned about what they see as an unwarranted expansion of employer-employee relationships and the potential for significant liability for misclassification of workers as contractors, while contractors have expressed displeasure at losing their independence.
Given that the fate of the proposed rules remains unclear, New Jersey employers do not yet need to review or modify their relationships with their workers. However, they should be ready for the possibility that the current structure of those relationships may need to change if the rules are adopted.
We will monitor developments closely and provide any updates as warranted. In the interim, if you have any questions about the proposed rules or worker classification generally, please contact Barry Capp at Ansell.Law.