On behalf of our member companies that make NJBIA the largest, most impactful association representing job creators in New Jersey, NJBIA thanks the Senate Labor Committee for allowing this important discussion today.
NJBIA is in strong opposition to the New Jersey Department of Labor and Workforce Development’s recently adopted regulations purporting to “codify” the ABC test for independent contractor classification that take effect October 1st of this year. While framed as a restatement of existing law, the regulations are, in substance, a sweeping and unilateral redefinition of settled legal standards, one that would dramatically narrow the pathways to independent work in the State. They raise profound legal, economic, and procedural concerns and should be invalidated in their entirety. Although we remain strongly opposed to the regulations as adopted, stakeholder feedback did result in several revisions to the proposed rules.
In 2025, NJBIA was honored to stand alongside more than two dozen legislators from both sides of the aisle, including members of this committee, as well as the thousands of New Jerseyans who submitted more than 9,500 public comments opposing the adoption of these rules. We thank all of you for your leadership then, and again now, as opposition continues in support of New Jersey’s independent contractors.
We further appreciate that the Department amended Prong A. It did so by removing language concerning whether the putative employer requires the individual to use a digital application or software platform primarily or unilaterally controlled by the employer, and by adding a new subsection (f) stating that “actions taken by a putative employer solely to comply with federal, state, or local laws or regulations shall not, standing alone, be considered evidence of control or direction under Prong A.”
It is, however, the lack of substantive changes to Prongs B and C, where the Department codified the strictest interpretations of the ABC test derived from New Jersey Supreme Court precedent, that brings us here today in strong opposition to the adoption of these rules and calling on the Legislature to take action to improve them. The current framework of these regulations stems primarily from a line of New Jersey Supreme Court decisions, namely Carpet Remnant Warehouse, Inc. v. Department of Labor, Hargrove v. Sleepy’s, LLC, and East Bay Drywall, LLC v. Department of Labor and Workforce Development.
In those decisions, the Court interpreted Prongs B and C of the ABC test narrowly, based upon a specific set of facts, particularly regarding what constitutes an “independently established business” and what qualifies as work performed outside the usual course or places of business of the putative employer.
In Carpet Remnant, the Court established the now well-known principle that if a worker would simply “join the ranks of the unemployed” upon termination of the relationship, the worker likely fails Prong C. East Bay Drywall further reinforced that strict standard by holding that business registrations, LLC formation, insurance certificates, and the ability to accept or reject work were not, standing alone, sufficient evidence of an independently established business. The Department thereafter utilized precedent derived from narrow, fact-specific circumstances and applied it in a far more expansive manner, transforming those standards into an inappropriate one-size-fits-all framework, and leaving Prongs B and C largely untouched. Consequently, proving independent contractor status is nearly impossible in many industries.
That is precisely why legislative involvement is now necessary.
We urge the Legislature to consider an Assembly Concurrent Resolution or Senate Concurrent Resolution to void these regulations. Alternatively, the State should use the next 120 days to work collaboratively on statutory remedies that allow these rules to be interpreted in a way that acknowledges the realities of the modern gig economy and does not infringe upon legitimate independent contractors and their right to maintain that status.
One possible solution would be to codify a more flexible balancing framework, such as the commonly used IRS test, into statute, or to legislatively reexamine Prongs B and C in a manner that better reflects entrepreneurship, modern independent work arrangements, and the realities of today’s economy.
An ACR or SCR would also allow the NJDOL to revisit these regulations through an appropriate APA process after conducting a meaningful investigation into whether existing standards and enforcement mechanisms were truly insufficient in preventing employee misclassification, and where the IRS framework allegedly failed.
That inquiry is particularly important given the disparity between the scope of misclassification alleged by prior administrations and the actual enforcement activity undertaken by the State.
The former administration claimed that between 10% and 30% of the workforce was misclassified, meaning somewhere in the ballpark of 100,000 businesses in New Jersey were improperly classifying employees. Despite those claims, the misclassification task force reportedly only issued approximately 200 to 300 stop-work orders over more than six years. That disconnect matters.
If worker misclassification was truly occurring at the scale alleged, one would expect enforcement activity proportionate to those claims, particularly when the ABC test and the Department’s enforcement authority were already firmly in place. Instead, the relatively limited number of stop-work orders raises broader questions about whether the problem being described is as widespread as claimed, or whether lawful independent contractor relationships are increasingly being swept into a much broader policy agenda surrounding employment classification.
The practical consequences of pursuing increasingly rigid classification standards have already been demonstrated elsewhere, particularly in California.
California’s experience following the enactment of AB5 demonstrated many of the concerns being raised here today. The law created significant disruption across industries reliant on flexible work arrangements, prompting backlash from workers, businesses, and voters who depended on the gig economy and independent contractor opportunities. In response, California was forced to substantially revise the law through AB2257, numerous subsequent carveouts and exemptions, and the voter-approved Proposition 22. The fact that the framework required so many legislative revisions, yet still remains subject to ongoing litigation and uncertainty, should serve as a warning to New Jersey policymakers as these regulations move toward implementation. New Jersey now risks moving further down a similar path. In fact, economists at the Mercatus Center at George Mason University found that implementation of the ABC test in New Jersey was already associated with:
- a 3.81% decrease in W-2 employment,
- a 10.08% decrease in self-employment, and
- a 3.95% decrease in total employment.
Those numbers matter.
The rules being “codified” today were already on the books and already enforceable. Yet despite relatively limited enforcement activity, New Jersey still experienced measurable declines in W-2 employment, self-employment, and total employment following implementation of the ABC test, even before the stricter interpretations being codified through these regulations formally take effect. Those declines reflect reductions in lawful independent work opportunities and income flexibility for many New Jersey workers.
Further, the individuals most impacted by these rules are often minority communities, immigrants, women, freelancers, and small business owners. Women, for example, own approximately 42.7% of nonemployer firms nationally compared to approximately 22.3% of employer firms, meaning restrictions on independent contractor relationships risk disproportionately harming women entrepreneurs and individuals relying on flexible work arrangements.
It is our contention that this debate was never simply about protecting workers who were truly misclassified. If it were, a comprehensive study would have first been conducted examining whether the existing federal standards and enforcement mechanisms were actually failing to detect and address unlawful misclassification at the scale being alleged.
Instead, policymakers moved toward an increasingly rigid classification framework that has evolved into one of the strictest independent contractor standards in the nation. The ABC test’s three prongs:
- Prong A, freedom from control,
- Prong B, work performed outside the usual course of business, and
- Prong C, independently established trade or business,
Along with the non-exhaustive factors and interpretations applied under them, create an extraordinarily difficult standard for lawful independent contractor relationships.
NJBIA urges the Legislature to waste no further time and pursue an ACR or SCR disapproving these regulations, return to the IRS framework, or at a minimum conduct an actual industry-specific study examining:
- What industries are truly misclassifying workers,
- Why workers are allegedly being misclassified,
- How widespread the issue actually is, and
- Why the IRS test supposedly fails to detect those violations.
New Jersey should not continue down a path that risks reducing flexibility, discouraging entrepreneurship, and eliminating lawful independent work opportunities for thousands of workers across this State.
