By: Ty Hyderally, Esq. and Kenny Delgado

May 16, 2025

New Jersey has taken a step to clarify and centralize the answers to a common question in the landscape of employment law —  should a person be characterized as an employee of an independent contractor.  A new rule proposal by the Department of Labor and Workforce development would clarify and provide guidance for employers and employees regarding the issue of independent contractors and employee designation.

The ABC Test

Many states follow the ABC test which is the national standard adopted by various state legislatures to make the determination of how to characterize a worker.  The burden is one that the employer bears in characterizing new hires as either an employee or an independent contractor. The test originated in California where it was eventually codified and has since made its way to almost every state, including New Jersey.   New Jersey codified the three prong ABC test in the New Jersey as New Jersey Administrative Code (“N.J.A.C.”) Section 12:11. It has been consistently in the Unemployment Benefits arena to determine eligibility for unemployment benefits.

The prongs are as follows:

Prong A – Control: The Employer must assess whether the worker has been and will be free from control or direction with regard to the work that worker performs or has performed.  To determine this prong, you look at documents that define what the worker does as well as information about what in fact the worker does.  The employer must determine whether the worker is free to work outside of the employer’s influence and whether the worker is free to set their own rules and use their own tools.

Prong B – Usual Course of Business: The employer must review whether the work that worker performs is necessary for the business to function. A determination must be made as to whether the work is outside of the usual course of business that the employer engages in.  Further, a determination should be made as to where the work is performed. Is it performed at a physical location outside of the employer’s place of business.

Prong C – Independently Established Business: The next determination entails reviewing whether the worker customarily performs services that reflect an independently established trade, occupation, profession or business.

With regard to prong A, if the employer exercises control and direction over the worker, then that is reflective of the worker being an employee. With regard to Prong B, if the worker performs work that is at the core of what the business does or is necessary to the business, then that is reflective of the worker being an employee. With regard to Prong C, if the worker performs services that are not reflective of an independently established trade or business, then that is reflective of the worker being an employee.  The three prongs are meant to be reviewed in a cumulative manner.

You would think that with the test being codified, there is clarity and the issue is easily resolved in a definitive manner as to whether someone is an employee or an independent contractor. However, there are a plethora of cases throughout the New Jersey courts pertaining to the issue of worker misclassification.  The courts have had to continuously review the 3 prongs to clarify and provide guidance.

Proposed Rules

On May 5, 2025, the New Jersey Department of Labor and Workforce Development rules were published and triggered a review period. The intention of the proposal is to make things easier for employers to more easily categorize their workers and to help workers more easily recognize when they are misclassified.

The proposed rules use established case law to clarify each prong and list situations that might cause confusion for employers who carry the burden of proving that they are not misclassifying workers. The clarity on the issue should reduce the administrative and legal burden of litigation in cases related to misclassified workers.

If you have any questions regarding your rights as an employee, you should seek out an experienced attorney who concentrates in employment law. Our firm has been concentrating in employment law for over twenty-two (22) years!

En nuestra firma hablamos español. This blog is for informational purposes only. It does not constitute legal advice and may not reasonably be relied upon as such. If you face a legal issue, you should consult a qualified attorney for independent legal advice regarding your particular set of facts. This blog may constitute attorney advertising. This blog is not intended to communicate with anyone in a state or other jurisdiction where such a blog may fail to comply with all laws and ethical rules of that state or jurisdiction.