NJBIA testified on Thursday that legislation before a Senate committee exempting certain licensed and regulated professionals from the state's independent contractor rule points to a fundamental problem with the overreaching rule itself.
The Department of Labor & Workforce Development (NJDOL) recently adopted regulations that are intended to prevent worker misclassification but also make it much more difficult to be an independent contractor in New Jersey. The rule, strongly opposed by NJBIA, has been paused until Oct. 1 to give NJDOL and lawmakers time to work out any needed statutory changes.
In testimony to the Senate Budget & Appropriations Committee, NJBIA Policy Analyst Jack Kelly said the association supported the intent of S-2782 to clarify that certain categories of workers and professionals who have historically operated as independent contractors are exempt. However, he noted that if the NJDOL regulations were clear in the first place, there would be no need to clarify them with carve-out legislation.
The bill, sponsored by Senators Gordon Johnson (D-37) and Paul Sarlo (D-36), did advance on Thursday.
It exempts licensed insurance agents and brokers, securities professionals such as financial advisers, drayage operators at marine terminals and rail facilities, and other individuals already exempt from being classified as employees under the state unemployment insurance compensation laws.
“NJBIA supports the bill because it addresses legitimate concern,” Kelly testified. “S-2782 is not evidence that these professions need special treatment. Rather, it is evidence that the current framework is producing outcomes that require legislative correction.”
Kelly noted that after California’s independent contractor law took effect in 2020 imposing a stricter “ABC test” to determine if a worker was an employee or independent contractor, lawmakers found themselves repeatedly revisiting worker-classification policy.
“Rather than addressing concerns through broader reform of the underlying framework, lawmakers began creating occupation-specific exemptions and alternative standards,” Kelly said.
“Over time, California established well over 100 occupational exemptions and alternative classification standards covering insurance professionals, securities professionals, physicians, accountants, architects, engineers, real estate professionals, writers, musicians, photographers, construction subcontractors, and many others.”
Even after all those legislative changes, California voters approved Proposition 22 by a margin of 58.6% to 41.4%, creating an entirely separate worker-classification framework for app-based rideshare and delivery workers that allowed them to remain independent contractors, rather than employees, Kelly said.
“California's experience suggests that addressing classification concerns one industry at a time can become an ongoing exercise as additional professions seek similar treatment,” Kelly told the committee. “As policymakers consider S-2782, we encourage the Legislature to also evaluate whether broader reform of New Jersey's ABC framework would provide a more durable solution than continuing down a carveout-by-carveout path.”
The New Jersey rule mirrors the ABC independent contractor standard in California that led to a reduction in freelance opportunities, job losses and legal battles. NJBIA has urged the Legislature to codify a more flexible balanced framework, such as the commonly used IRS test, or to re-examine prongs B and C to better reflect entrepreneurship, modern independent work arrangements, and the realities of today’s economy.
“These reforms are necessary to protect New Jersey’s more than 1 million independent contractors, many of whom are women, caregivers, retirees, and individuals seeking the flexibility that independent work provides,” Kelly said.
“Independent contractors are also often small business owners themselves or provide essential services that other employers rely upon to operate and grow. By modernizing the current framework, New Jersey can better support entrepreneurship, workforce participation, and economic opportunity while improving the state’s overall business climate,” he said.
