New Jersey, feds take opposite paths on independent contractor rules

The past week saw two developments in the battle over defining independent contractor (IC) status: One would likely tighten the definition of what jobs hold IC status in a state that is a key transportation hub; the other would work to loosen the standards.

In New Jersey, the state’s Department of Labor and Workforce Development last week said it had filed a notice of proposal for new rules with the New Jersey Office of Administrative Law that would codify a definition of the ABC test throughout multiple state regulatory authorities. The state said the codified ABC test would be integrated into the state’s Unemployment Compensation Law, its Wage and Hour Law, and its Wage Payment law. 

The ABC test is known mostly as the core of California’s 2019 AB5 law that codified a court decision establishing ABC as the defining guideline for state regulatory authorities and the courts to use in determining whether a worker is a legitimate IC or should be considered an employee. It is considered to weigh heavily toward defining that worker as an employee with a tough set of hurdles for establishing IC status.

And in Washington, there was a development in the latest ping-pong match between the two Trump administrations and the intervening Biden administration over a federal IC rule promulgated by the first Trump administration and then replaced with the Biden administration’s own version.

Letter sent to the field

The acting administrator of the Wage and Hour Division (WHD) of the U.S. Department of Labor, Donald Harrison, sent a note to regional WHD administrators and district directors dated May 1 that told them: Never mind. 

Referring to ongoing lawsuits over the January 2024 Biden rule, Harrison’s note said the Department of Labor “has taken the position in those lawsuits that it is reconsidering the 2024 Rule, including whether to rescind the regulation. Specifically, WHD is currently reviewing and developing the appropriate standard for determining Fair Labor Standards Act employee versus independent contractor status.”

One of the most knowledgeable observers of IC status – and one who writes what is believed to be the only blog dedicated to the issue – is attorney Robert Reibstein of the law firm of Troutman Pepper Locke. In back-to-back recent postings, he again reiterated an earlier view that the IC rule at WHD is not particularly important relative to what courts rule on the IC status question.

Big shift in the Garden State

But Reibstein’s view of the New Jersey changes on AB5 are dire in predicting their impact on ICs in the Garden State.

The state, in explaining its goals for the changes it is proposing, said the proposed rules “aim not only to safeguard the rights and benefits of employees who have been wrongly classified as independent contractors, but also to affirm the right of genuine independent contractors to forgo employment in favor of engaging in independently established business enterprises.”

But Reibstein saw the impact as far more sweeping.

“The new regulation would likely prompt companies utilizing ICs in New Jersey to either cease operating their businesses in the Garden State or double down in their efforts to enhance their IC compliance,” Reibstein said. The “doubling down” could include using a service offered by the Troutman Pepper Locke law firm called IC Diagnostics.

In California, the trucking sector has been focused on the potential problems that the B prong of the ABC test in AB5 could create. The B prong is a simple definition. It says a worker can be considered independent if he or she “performs work that is outside the usual course of the hiring entity’s business.” A trucking company utilizing a non-employee independent truck driver could be viewed in conflict with that.

A wide definition of place of business

In New Jersey, the proposed rule is more detailed. For example, the definition of “usual course of business” in the New Jersey proposal involves physical locations and not just activities.   

The proposed widening of the definition of “place of business,” according to Reibstein, “almost entirely eviscerates any chance for most ICs and companies using their services from establishing the workers’ IC status.”

The expansion of real estate under the B prong, Reibstein said in an interview with FreightWaves, means “they’re saying every place you go under the sun is going to be considered a company location.” Even if a truck doesn’t go to a company-owned terminal, he said, the wider definition means any activity could be considered under the new rule to be a “place of business,” triggering the B prong. 

Reibstein also wrote that the widening of the place-of-business definition appears to be in conflict with one of the legal precedents cited by the state as the reason for its changes, and is likely to provoke court challenges.

A 60-day comment period on the proposed rule launched Monday. Email comments can be sent to David Fish of the Department of Labor and Workforce Development at david.fish@dol.nj.gov.

Reibstein noted in his blog that while there have been dozens of exemptions from AB5 in California, none as yet have been proposed in New Jersey in regard to its tightening of the ABC law.

At the federal DOL, the scorecard goes like this:

• The Trump administration implemented a new rule at WHD on IC classification in the waning days of Trump 1.
• The newly installed Biden administration yanked it quickly until a judge said it couldn’t do that and needed to go through normal rulemaking.
• The rulemaking resulted in a new standard that wasn’t all that different from the Trump rule and was in place just a bit more than a year before Biden left office.  

On the margins, the Biden rule was seen as more likely to be interpreted as favoring classification of a worker as an employee rather than an IC.

Reibstein has been consistent in his views on the DOL IC rule: It isn’t all that big a deal.

“The [letter from Harrison] has a very limited impact, and does not supplant state IC laws that have different and often stricter tests for IC status than the Fair Labor Standards Act,” Reibstein wrote.

That statement echoed what he wrote when the rule was launched in January 2024: “The legal impact of the final rule, however, will hardly ripple the waters. After all, it is ‎the courts that create law on this subject, not regulatory agencies.” 

Reibstein, in his interview with FreightWaves, noted that the first Trump rule replaced an Obama rule that was the precursor to and similar to the Biden rule. “Each successive administration for the past nine years has been trying to undo the prior administration’s position on the test for independent contractor status,” he said. “And the courts don’t really care, because they have decades of cases where they have interpreted the FLSA in a manner consistent with the Supreme Court.”

More articles by John Kingston

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14-year-old case that brought ABC test to New Jersey was just settled

Groups lose latest court attempt to block California’s AB5 from state’s trucking sector

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