The New Jersey test for independent contractor status under the unemployment laws is already very tough, the very infamous, A-B-C standard. That is seemingly not enough for this Administration and Commissioner Asaro-Angelo. The Senate Labor Committee has just passed Senate Bill 4204 which will revise the last two prongs of this tri-partite test, making it even more difficult for a single individual (e.g. a sole proprietor or LLC) to be found to be an “independent contractor.”
The putative employer must prove that all three prongs of the test. The first prong, the control prong, requires that the individual will be free from control or direction over the manner in which he performs the services; the person must be able to come and go as he pleases, set his own hours, reject work, not report to an office and other similar indicia. This prong, usually not a problem for a putative employer to meet, has been left unchanged.
The fun begins with Prong B. The revision would toughen up this prong by requiring that the “individual’s service is outside the usual course of the business for which that service is performed.” Thus, even if the contractor performed all of his duties away from the employer’s place of business (which today would meet the prong), the B prong would still not be satisfied if the contractor was in the same business or field as the putative employer. Thus, a lawyer who was free lancing for a law firm would not be outside the “usual business” of his putative employer.
The third prong has always been the toughest to meet. Of the 100 or so independent contractor audits (most under this test) I have defended, most go south for the employer on the third prong because making that showing is numerical, and based on the magical 30% of income from sources other than the (audited) employer. The revision here mandates that this other income must be derived from a trade or business/profession “of the same nature as that involved in the work performed.” Before this, an individual could show they had their own business independent of the putative employer but now they would have to be operating in the same field of endeavor as the type of services they are providing to the particular employer. For example, the lawyer in the above example who was engaged by a college to teach Evidence would not be providing lawyer-like services to the college.
Lastly, there is some potentially troubling language that states that even if an individual meets the new A-B-C test, that person would still be an employee “unless and until” the Commissioner finds otherwise. This might mean that the Commissioner (or his designee) needs to assert/affirm that a certain individual was in fact an independent contractor, even if the employer proved, in a lawsuit, that the person met the new test. This seems to be to be an almost nonsensical interpretation of the statute but who knows?
This law would, beyond dispute, make New Jersey the toughest State to prove independent contractor status. I believe the bill will pass, probably with ease. If so, as I harp on all the time, it behooves all employers to conduct internal audits of their independent contractors, the agreements evidencing those relationships, and most importantly, if the conditions “on the ground” would satisfy the new draconian standards.
Ounce of prevention, you know…