Daniel Pierre

On July 8, New Jersey Governor Phil Murphy signed three bills into law raising the stakes for employers that misclassify employees as independent contractors. With the changes, businesses operating in the state and misclassifying employees can expect to pay stiffer fines and face legal enforcement actions that didn’t previously exist.

Stop-Work Order

The first law is effective immediately and authorizes the New Jersey Department of Labor and Workforce Development (NJDOL) to (1) shut down a workplace found to have violated the Unemployment Compensation Law (UCL) and (2) levy fines for each day the employer ignores NJDOL’s order. Also, an employer receiving a stop-work order must pay its employees for the first 10 days of the order.

State labor officials already had the authority to shut down a worksite under a bill Governor Murphy signed in 2020. The new law increases the tools available to the NJDOL to encourage compliance by employers and exact penalties for noncompliance. More specifically, businesses will feel the impact in the following ways:

• Failure to pay UCL contributions may result in a stop-work order and an indefinite suspension of business operations.
• The scope of a stop-work order is now broader and can apply to “all of the employer’s worksites and places of business,” not just the specific work location where the violation occurred.
• The NJDOL can assess a civil penalty of $5,000 per day for each day the employer conducts business in violation of the stop-work order.
• A request for a hearing challenging the stop-work order doesn’t stay (or pause) its effectiveness.

Failure to maintain wage records may trigger a permanent ban on a company’s New Jersey operations and a fine of not less than $1,000 per day until the employer gets into compliance. The NJDOL is authorized to initiate a wage claim on behalf of any employee not paid in compliance with the state wage and hours laws (e.g., the state minimum wage, which is now $12 per hour for most industries).

New State Department

The second law is effective immediately and creates the Office of Strategic Enforcement and Compliance, which will investigate employee misclassification claims and coordinate strategic enforcement efforts both within the NJDOL and across other state agencies.

To be considered in substantial good standing with the state, an employer must have no outstanding liabilities for unpaid contributions into the unemployment compensation fund. Businesses with any outstanding liability will receive no business assistance from the NJDOL, and their status with the department will be reported to other state agencies.

Insurance Fraud

The third law, which takes effect on January 1, 2022, streamlines the process for identifying unlawful employee misclassification and provides that any business misclassifying employees “for the purpose of evading payment of insurance premiums” commits insurance fraud. An adverse finding under the law will trigger an investigation by the New Jersey Department of Banking and Insurance (NJDOBI).

An employer found to have “purposely” or “knowingly” misclassified its employees violates the New Jersey Insurance Fraud Prevention Act and is subject to fines starting at $5,000 for the first violation, $10,000 for the second, and $15,000 for each subsequent violation.

Bottom Line

The significant changes to New Jersey law and the enhancement to the police authority of the NJDOL and the NJDOBI all underscore the state’s continued commitment not only to penalizing employee misclassification but also to discouraging use of the traditional independent contractor model. You should realize that the risks associated with classifying workers improperly as independent contractors in the state may now be more than what you can afford, given the prospect of stop-work orders, the cost of paying employees for 10 days, heavy fines, agency enforcement actions, and bad publicity.

Daniel Pierre is an associate in Genova Burns’s labor practice group. Pierre previously served as a deputy attorney general in the Office of the Attorney General of New Jersey in Trenton, where his duties included representing the New Jersey Department of Labor on all administrative and litigation-related matters, prosecuting employers for wage and hour violations, and conducting formal employment counseling for all state agencies. He may be contacted at dpierre@genovaburns.com.