There are only 18 days before a controversial New Jersey Department of Labor and Workforce Development rule that expands the ABC test and makes it more difficult for workers to qualify as independent contractors takes effect.
Of late, Senate President Nick Scutari has asked Gov. Mikie Sherrill to delay the rule as a result of it being too broad and with serious consequences awaiting both gig workers and business.
NJBIA has also launched an ABC-Delay grassroots campaign at njbia.org/ABCDelay, also asking the Sherrill administration to pause the rule until July 1, 2027, to allow for more conversation and clarity before needless damage is done to the state’s economy.
But there’s another factor underscoring the situation that is not receiving as much attention.
The U.S. Department of Labor proposed a rule in February that would make it easier for businesses to classify workers as independent contractors under federal law.
In other words, it goes in the exact opposite direction of what New Jersey is trying to achieve -- and would effectively put the Garden State at another severe competitive disadvantage for both businesses AND freelance workers at a time when businesses are leaving and thousands of jobs are being lost.
“The problem for New Jersey freelancers is federal rules enforced under the Fair Labor Standards Act do not override state rules that use a different or stricter standard,” said NJBIA Policy Analyst Jack Kelly. “If a state has a more rigorous test, businesses must comply with that stricter standard.
“But as we’ve seen all year with companies leaving or looking to grow elsewhere, and with our large job losses in 2026, this situation would put New Jersey in another vulnerable disadvantage for both businesses and independent contractors.
“The Sherrill administration says it is prioritizing the improvement of New Jersey’s business climate. But this is another policy that goes in a different direction. As we have seen and perhaps likely to continue to see, businesses will move or invest elsewhere. I believe it is safe to assume independent contractors who choose that status and thrive could also look elsewhere if that flexibility and right to earn is important to them," Kelly said.
INTERNATIONAL INSTIGATION
The USDOL’s proposed rule would make it easier for businesses to classify workers as independent contractors under federal law.
It rescinds the prior 2024 framework under the Biden administration which favored employee status through a broad six-factor test.
It refocuses on a streamlined two-factor approach emphasizing operational control and the opportunity for profit or loss.
And it awaits final action in Washington.
One of the motivations for the federal rule is a new treaty adopted by the International Labour Organization (ILO) earlier this year. It represents the first binding global legal framework specifically targeting the gig economy and worker misclassification.
The U.S. voted against the policy, arguing against prescriptive international mandates in fast-evolving sectors.
In an op-ed published last June in the Washington Times, U.S. Deputy Secretary of Labor Keith Sonderling, long a supporter of independent contractors, said in adopting the treaty, the ILO wants to make California’s AB 5 bill the “global gold standard in the gig economy.”
And New Jersey’s updated independent contractor rule effectively mirrors the California policy, an economic failure that Sonderling called “catastrophic.”
“It tried to reclassify most independent contractors as employees,” Sonderling wrote. “Instead of improving livelihoods, it triggered chaos.
“Freelancers across media, transportation, tech, and the arts lost contracts overnight. Self-employment rates cratered. Only after a voter revolt and economic fallout did lawmakers scramble to undo the damage, carving out one exemption after another — a slow-motion admission that they had gone too far.”
BACK TO JERSEY
Prior to Scutari’s letter requesting the Sherrill administration to pause the rule, two dozen lawmakers from both sides of the political aisle also publicly urged NJDOL to abandon the initial proposal – which was originated by the Murphy administration.
Last year’s proposal yielded 9,500 comments in opposition to it, many from freelance workers themselves who are rightfully concerned about their ability to maintain work flexibility and their means of earning a living.
NJBIA has been the leading business voice opposing sweeping changes to the criteria of the ABC test that determines whether a person is a freelancer or an employee.
While the Sherrill administration has said the adoption of the rule is only a codification of the ABC test, NJBIA, the business community at large and freelance workers throughout New Jersey say the regulations do much more than merely restate existing law.
“They cement into regulation a legal framework that originated in 1936, when the ABC test was developed for workers' compensation cases during a vastly different economic era,” Kelly said.
“At that time, worker protections were limited, employee misclassification was a widespread means of avoiding basic obligations, and beginning with the presumption that a worker was an employee served an important public policy purpose.”
“Independent professionals today perform app-based work, consulting, and project-based services. Yet these regulations now adopt a framework built for the labor market of 90 years ago and make it the default standard for modern employment relationships,” Kelly added.
