The following comments were submitted by Richard J. Reibstein, the publisher of this legal blog, critiquing the proposed regulation of the New Jersey Department of Labor and Industry (the Department) regarding the so-called ABC test for independent contractor (IC) status under a variety of New Jersey laws, including minimum wage and overtime, wage payment, disability benefits, and earned sick leave laws. The comment period ended August 6, 2025. The comments below are re-printed verbatim, and include some of our initial thoughts, first published in our blog post of April 30, 2025, titled “New Jersey May Soon Become Even Less Favorable to [the Use of] Independent Contractors Than the Golden State.”
Several articles have appeared recently in the business and legal media noting criticism of the proposed regulations from industry stakeholders as well as business and freelance worker associations. Most of the comments submitted by the publisher of this legal blog, however, focus on the legal inadequacies of the proposed regulation and the Department’s misapprehension not only of current New Jersey law but also the law of IC status at the federal and state levels.
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COMMENTS BY RICHARD J. REIBSTEIN TO “ABC TEST; INDEPENDENT CONTRACTORS – PROPOSED NEW RULES: N.J.A.C. 12:11”
The following comments are being submitted by attorney Richard J. Reibstein, as the publisher of the legal blog “Independent Contractor Misclassification and Compliance,” which has been published at www.IndependentContractorCompliance.com since 2010. In addition to his legal practice, a large part of which is dedicated to enhancing compliance with independent contractor (IC) laws across the U.S. and defending companies in class actions and individual lawsuits as well as in government audits and investigations alleging IC misclassification, the publisher has summarized and analyzed in monthly blog posts over a thousand cases and scores of statutes and regulations addressing independent contractor misclassification and compliance. The publisher has written over 60 articles and been quoted over 120 times about IC compliance and misclassification matters by legal, business, and national media outlets.
Background
These comments address the proposed regulation of the New Jersey Department of Labor and Industry (the Department) regarding the so-called ABC test for IC status under a variety of New Jersey laws. In 2015, the New Jersey Supreme Court issued an opinion in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), ruling that the three-prong ABC test for IC status under the New Jersey Unemployment Compensation Law also governed IC status under the state’s wage payment and wage and hour laws. Prior to and following Hargrove v. Sleepy’s, LLC, the Supreme Court of New Jersey has issued decisions clarifying all three prongs of the ABC test.
The proposed regulation is accompanied by a lengthy “Summary.” It states that the Department’s regulation “relies heavily” on two New Jersey Supreme Court opinions: one issued in 1991 in Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991), and the other in 2022 in East Bay Drywall, LLC v. Dep’t of Labor and Workforce Development, 251 N.J. 477 (2022). As drafted, the proposed regulation is directly contrary to Carpet Remnant Warehouse and also deviates from virtually every test for IC status under federal and state law, as described in detail below.
Summary of Comments
The Department’s proposed regulation as to Prong A appears to state that an independent contractor agreement including language that the IC comply with all applicable laws is to be deemed as a form of direction and control over the service provider, nothwithstanding the fact that that all service providers (indeed, all of those who do business in New Jersey) are of course required to comply with applicable laws, and despite the fact almost all independent contractor agreements in this and every other state in the U.S. provide contain such language. Unless this part of the regulation is corrected, it will foster the elimination of almost all independent contractors in this State.
The Department’s proposed regulation as to Prong B is directly contrary to an existing New Jersey Supreme Court case, Carpet Remnant Warehouse, one of the two decision that the proposed regulation expressly states that it is following. If not rectified in the final version of the regulation, it would literally eviscerate Prong B and thereby eliminate the opportunity for many freelancers and other independent contractors from being otherwise validly classified as ICs in this State.
These and other infirmities in the proposed regulations, 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.
The “A” Prong
The proposed regulation first addresses the “A” prong of the ABC test, which states that the putative employer “does not exercise control or direction over the individual’s work in fact, and that it does not reserve the right to control the individual’s work.” The proposed regulation lists nine factors that will be considered in determining whether the worker is “free from control or direction” under Prong A. The proposed regulation also notes that such factors “are not exhaustive and additional factors may be considered” because the purpose of “[w]hat is required under Prong A of the ABC test is to evaluate the entire relationship between the individual and the putative employer….” This part of the proposed regulation is consistent with prevailing law in New Jersey and elsewhere around the country.
The proposed regulation pertaining to Prong A departs in a dramatic manner from virtually every other test for IC status under federal law and the laws in every state — and unless clarified in the final version of the regulation, would not merely tilt the balance in favor of employee status and against legitimate ICs but rather lead to the elimination of all ICs in New Jersey.
The services provided by almost all ICs are typically governed by a number of laws. But the regulation seems to regard a commonplace requirement found in almost every IC agreement – a clause requiring the contractor to simply comply with all applicable laws – as a form of direction and control. As drafted, the proposed regulation to be codified at N.J.A.C. 12:11-1.3 (f) states:
Any control or direction over the performance of services, any control or direction that the putative employer has exercised, or has reserved the right to exercise, in order to be in compliance with a law or rule shall be considered [a form of direction and control]; that is, it shall be given equal weight to what would be given any other control or direction that the putative employer has exercised or has reserved the right to exercise.
Even if an IC agreement did not contain this commonplace contractual language, the proposed regulation, as drafted, would appear to treat as an impermissible form of direction and control a decision by the hiring party to terminate the IC agreement of a contractor who violates the law. Under the proposed regulation it appears that a hiring party cannot, without jeopardizing the IC classification, terminate the IC agreement of, for example:
- An independent salesperson who repeatedly violates the law by stealing merchandise from either the hiring party or a customer;
- A contractor providing driving services who repeatedly drives a vehicle in a manner that violates the law; or
- A contractor providing plumbing services who fails to follow any state or local plumbing code in performing services.
No case from among the hundreds of those reviewed as the publisher of the “Independent Contractor Misclassification and Compliance Blog,” including dozens from New Jersey, has ever held that insistence on compliance with the law is a factor that even remotely suggests direction or control over performance. Notably, nothing in the “Summary” of the proposed regulation refers to any New Jersey case that held that insistence on compliance with the law is a factor suggesting direction or control. If subpart (f) of proposed N.J.A.C. 12:11-1.3 is not deleted in its entirety, it is overwhelmingly likely that the courts in New Jersey will reject this subpart (f) of the proposed regulation.
The proposed regulation as to Prong A also fails to distinguish between direction and control over “how” the services are to be performed by an IC and direction and control over “what” the IC has been engaged to perform. Virtually every court that has addressed this issue readily acknowledges the difference: indeed, every hiring party has the right (indeed the obligation) to direct both an IC and employee as to “what” to do. A plumber engaged to provide plumbing services as an IC must be told what services are needed, such as unclogging a drain; otherwise, the plumber would have no idea what services he or she is being engaged to perform. But where a hiring party directs the plumber how to unclog the drain, such direction would be a key factor undermining IC status and indicating employee status.
The proposed regulation as to Prong A should therefore make clear that “control or direction over the individual’s work” focuses on “how” the worker performs his or her services, not “what” services are to be performed. Many courts across the country refer to control over how the services are to be performed as control over the “results” of the engagement, and such control over results is universally treated by the courts in the U.S. as wholly irrelevant as to the classification of a worker as an IC or employee. In contrast, many courts refer to control over how the services are to be performed as control over the “manner and means” of performance. That latter type of control, unlike control over the results, is universally treated by courts in the U.S. as indicative of employee status.
The failure to distinguish between control over results, versus control over the manner and means of performance, is a glaring deficiency in the proposed regulation. The final regulation should ensure that the focus of Prong A is not on the “what” or the “results” of the services to be performed but on the “how” or the “manner and means” of performance.
The “B” Prong
New Jersey’s ABC test, like most of the other states that have a three-prong test for IC status, has a “B prong,” which can be met in one of two alternative ways: by a showing (i) that the services are performed “outside of the usual course of business” of the party that engages the contractor, or (ii) that such services “are performed outside of all of the [hiring party’s] places of business.”
Some states with ABC tests have taken a broad view of the hiring party’s “usual course of business,” and so does the proposed regulation. In the final regulation, the Department should take a balanced approach to this first part of the B prong by clarifying that if the hiring party does not perform such services itself, then engaging an IC to perform such services would be “outside of the usual court of business” of the hiring party. Otherwise, the regulation could be construed in a manner whereby very few hiring parties in New Jersey would ever be able to satisfy the first alternative part of the B Prong.
The proposed regulation takes an extraordinarily expansive view of the second part of the B Prong. It states that a hiring party’s “places of business” not only include “locations where the enterprise has a physical plant or conducts an integral part of its business,” but may also include “locations outside of the putative employer’s physical plant, where the services performed by the individual [worker] are an essential component of, rather than ancillary to, the putative employer’s business.” Proposed N.J.A.C. 12:11-1.4 (g).
It is unclear what those words “essential” or “ancillary” mean in the context of the proposed regulation, then gives illustrations that do little more than create an enormous amount of uncertainty – even for lawyers, let alone businesspersons, contractors, and workers – and will lead to years of prolonged litigation over two otherwise meaningless words that appear nowhere in the ABC test.
To the extent a location is deemed “essential” under the second part of the “B prong,” the proposed regulation would almost entirely eviscerate any chance for most ICs and companies using their services from establishing the workers’ IC status. But even more problematic is that this part of the proposed regulation appears to be directly contrary to one of the two main New Jersey Supreme Court cases cited in the Summary of the proposed regulation: Carpet Remnant Warehouse.
In that case, the New Jersey Supreme Court held that the hiring party had shown that independent carpet installers met the “B Prong” of the ABC test under the Unemployment Compensation Law when they installed carpet at customers’ homes for a carpet company that offered carpeting at both an installed and uninstalled price. The Court concluded that the residences of the carpet company are “clearly ‘outside all of the places of business of [the carpet company],’ cautioning that if the B Prong were extended to “every geographical point of installation,” as the Department argued in that case, it would be “practically impossible” for a party to satisfy the second alternative of the B Prong.
The Department’s expansive view of the B Prong in Carpet Remnant Warehouse was rejected by the New Jersey Supreme Court, yet that is akin to the same expansive position the proposed regulation articulates. As the Supreme Court stated in that case:
The Commissioner [of Labor] also concluded that the installers had not satisfied either alternative of the B standard. See N.J.S.A. 42:21–19(i)(6)(B). In reaching that finding, the Commissioner relied on the decision in Irvington Linoleum & Carpet v. Department of Labor, supra, OAL Docket No. LID 6278–87 (slip op. at 10), in which the ALJ concluded both that “installation service is not outside the usual course of [the carpet retailer’s] business” and that the retailer’s places of business “may broadly be said to extend to every geographical point of installation.” Under that definition of “places of business,” for a person to satisfy the B standard’s second alternative would be practically impossible. In our view, that phrase refers only to those locations where the enterprise has a physical plant or conducts an integral part of its business. Hence, we find that the residences of CRW’s customers are clearly “outside of all the places of business of [CRW].” N.J.S.A. 43:21–19(i)(6)(B).
125 N.J. at 592 (emphasis added).
The proposed regulation also ignores that facts in Carpet Remnant Warehouse, which would not fit snugly into either the “ancillary” or “essential” dichotomy created by the proposed regulation. See, e.g., 125 N.J. at 573-575 (describing the mixture of ancillary and essential factors that the proposed regulation seems to have ignored).
Where as here, the Department says that it is relying heavily on the New Jersey Supreme Court opinion in Carpet Remnant Warehouse, the proposed regulation then deviates therefrom. If this part of the proposed regulation is not abandoned when a final regulation is issued by the Department, it would not survive a court challenge.
The likely ramifications from this new proposed regulation if issued with few if any changes
Unlike California’s AB5 and successor bills enacted in that state with 65 or more exemptions from its strict ABC test, the proposed regulation has none. The regulations carry out the 2015 New Jersey Supreme Court decision applying the ABC test under the New Jersey Unemployment Compensation Law to the New Jersey wage, sick leave, and temporary disability benefits laws, but the Unemployment Compensation Law continues to include over two dozen exemptions from the ABC test. Nowhere in the proposed regulations do they mention that any of these exemptions apply to the wage, sick leave, or disability benefits laws; indeed, the proposed regulation does not even mention that the exemptions in the Unemployment Compensation Law continue.
As a result of the uncertainty as to whether any of the Unemployment Compensation Law exemptions apply to the state wage laws, one industry that was covered by an exemption to the ABC test under the unemployment law in New Jersey, working with the legislature and governor, has been excluded from the ABC test. Real estate salespersons classified as ICs are currently exempted from the ABC test in New Jersey for wage and hour laws under a 2022 amendment to the New Jersey Brokers Act. As the article by Chris Marr in Bloomberg Law’s Daily Labor Report stated, quoting the publisher of this blog, “Like California, the legislators in New Jersey will be inundated by lobbyists” seeking exemptions, if the labor department implements the regulation as it’s currently written . . . .” Some industries may also proceed with voter initiatives such as what transpired in California when voters approved Prop 22 in November 2020.
Dated: July 31, 2025
Respectfully submitted,
Richard J. Reibstein, Esq.
Publisher, Independent Contractor Misclassification and Compliance Legal Blog
