New Jersey is the latest battleground over the legal definition of an independent contractor, with a proposed change in state regulation seeking to move the state’s ABC test closer to the California-like definition found in AB5.
In California, AB5 first came out of a court decision known as Dynamex. It then was codified into state law by both houses of the state legislature with Gov. Gavin Newsom signing the bill into law.
In New Jersey, the proposed changes are also aimed at codifying various court decisions that define independent contractor status in the Garden State, which already had an ABC test in its regulatory framework. Unlike California, the latest changes are being pursued through a rulemaking procedure rather than the state legislature.
However, the end goal is the same: making the ABC test in both California and New Jersey more likely to find that a worker is an employee rather than an independent contractor (IC) when it becomes an issue in a regulatory or legal action.
New Jersey’s current process is being driven by the state’s Department of Labor (DOL). In late April, DOL posted the proposed rule and opened up a 60-day period in early May for comments. The comment period later was extended until last week.
New Jersey already had an ABC test in its labor regulations. But the latest proposal is seen as putting a thumb on the scale of a court or regulatory agency more likely to find a worker is an employee rather than an independent contractor.
That has brought out critics through public statements, press releases or in at least one case, publicly sharing their comments to the state’s DOL online. Comments submitted to the DOL are not available online, unlike how they would be for federal rulemaking. But the state is reportedly telling people they will be made available soon.
‘Hostile and unworkable’
The instance of a publicly-released comment–or at least a summary of them–comes from Richard Reibstein, an attorney with the firm of Troutman Pepper Locke. Reibstein specializes in independent contractor law. He shared the summary of his comments to the DOL, filed near the end of the comment period, on his IC-focused blog.
The proposed changes, Reibstein said, “if finalized in their current form, would create a hostile and unworkable legal environment in this state for legitimate ICs and the companies that engage legitimate ICs, which would likely prompt freelancers and other New Jersey-based ICs to lose work opportunities and cause many businesses in New Jersey that use ICs to cease operating their businesses in the State, similar to what has occurred when California enacted Assembly Bill 5, which codified the ABC test in that state back in 2020.”
ABC tests are alike but not identical
While the wording between California and New Jersey’s ABC tests are not identical, they follow a similar structure.
The first of the three–the A prong–deals with the question of defining an employer’s control over a worker. The B prong, long seen as having the most potential to disrupt trucking in California, creates a standard that an IC can not be performing the same basic function as the company that employs them. So a trucking company hiring a service to clean the office is acceptable; a trucking company hiring an independent owner operator to move freight might not be.
And the C prong requires an IC to be able to show that they are operating an independent business, based on tests such as whether they own their own tools and equipment and whether they can show a history of running that business based on number of customers and financial performance. (Reibstein, in his summary, said the proposed changes with the C prong in the DOL plan were minor enough that they were not likely to garner many comments).
One notable difference between California and New Jersey is that while the Golden State’s Democrats were solidly behind AB5 and continue to be, there are significant pockets of opposition to New Jersey’s proposed changes coming from that party, which controls both houses of the state’s legislature and the governor’s office.
As an example, Democrat Sen. Angela McKnight, who represents the 31st district that includes New Jersey’s ports, took aim at the possible impact on their operations.
In an August 1 letter sent to Robert Asaro-Angelo, the head of the state’s Department of Labor and Workforce Development, McKnight said, “75% of New Jersey-based truck drivers are independent contractors, reclassification could disrupt operations, reduce flexibility and earnings and push drivers to relocate to less restrictive states, causing supply chain issues, empty shelves and higher consumer costs.”
While the same fears were raised about AB5 in California, at least at the ports of Long Beach and Los Angeles, the evidence of a disappearance of drayage drivers has not occurred. The City Outbound Tender Rejection Index in SONAR out of Los Angeles, a measure of short haul capacity like drayage, has remained at less than 5% almost consistently since the end of the post-pandemic freight boom.
The consistently low numbers are occurring even as import levels are strong. For example, June box cargo volume at the port of Los Angeles was at a record level with no significant reports of freight being unable to be transported from the port. West Coast ports in general are picking up market share relative to the East Coast. As the Los Angeles COTRI affirms, there is no sign of an inability to secure trucking capacity to move that freight.
However, there are no known enforcement actions in California against any trucking companies since AB5 was allowed to be enforced in the state starting in 2022. That might have allowed the state–so far–to dodge any tightening of capacity related to AB5.
Reibstein, in his blog post, summarized the issues he saw with the New Jersey ABC proposal. Among the red flags he raised:
–The A prong as proposed would look at various parts of the relationship between employer and worker and see them as control, whereas in other areas they are seen as standard practices necessary to make the employer-IC relationship work. An example: a requirement for an IC to follow the law.
“Under the proposed regulation it appears that a hiring party cannot, without jeopardizing the IC classification, terminate the IC agreement” for an act as basic as stealing from the employer or a customer. According to Reibstein, that is seen as “control.” And the A prong says an employee can not have control over a worker and consider him or her an IC.
–On the B prong, which is a two-part rule in New Jersey unlike AB5, a “place of business” is interpreted widely, according to Reibstein. It could include areas “outside of the employer’s physical plant, which greatly widens the question of whether a worker is a true IC.
“This view of the second part of the B prong almost entirely eviscerates any chance for most ICs and companies using their services from establishing the workers’ IC status,” Reibstein wrote. It also is in opposition to the Carpet Remnant decision in New Jersey, which in other parts of the proposal is cited as a reason to make the overhaul in the state’s IC law.
Process is largely over
A hearing before the Department of Labor was held in late July. There are no other scheduled public steps in the process. The next formal step is likely to be the DOL releasing the comments (which is not required) and the rule itself.
Lisa Yakomin,the president of the Association of Bi-State Motor Carriers, which represents the drayage community for the port of New York and New Jersey, said the Department of Labor can implement the changes without any further approval needed. But there still would be hurdles.
The department, which is part of the executive branch headed by Gov. Murphy, can be overruled by the governor, she said. “We’ve appealed to the governor to call of this rule proposal and to tell commissioner Angelo to rescind the proposal,” Yakomin said.
If the rule is implemented, Yakomon said the legislature “does have the power to put forth any number of pieces of legislation to try and reverse this. They can put forth legislation that further defined what is an independent contractor and what is not.”
As one observer noted, there is an unofficial deadline: Election Day. Gov. Phil Murphy, who appointed Asaro-Angelo, can not succeed himself as governor. A tight race between Democrat Mikie Sherrill, a member of Congress, and former New Jersey state assemblyman Jack Ciattarelli, could result in a Ciattarelli victory with a replacement for Asaro-Angelo less likely to embrace the changes now under consideration in the state’s independent contractor law.
If the state gets the IC changes in place before the end of the year, it could then set up the type of whipsaw changes in regulation that have hit the federal IC rule under the Wage and Hour division of the Department of Labor.
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