Why Everyone’s Talking About New Jersey’s ABC Test
Sep 10, 2025 | Written by: | Share
Lately, New Jersey news outlets have been buzzing about a proposal from the NJ Department of Labor and Workforce Development (NJDOL) that could reshape how workers are classified. At the center of the discussion is the ABC test, a legal standard used to determine whether a person is truly an independent contractor or an employee. The state wants to formally include this test in the New Jersey Administrative Code (NJAC), which would give regulators more authority and make enforcement much stronger.
Employee vs. Independent Contractor
The distinction between an employee and an independent contractor goes far beyond job titles. Employees enjoy a wide range of legal protections under state and federal law, including guaranteed minimum wage, overtime pay, unemployment insurance, and other workplace rights. Independent contractors, however, generally only have the rights that are spelled out in their contracts. Because of this, some businesses have misclassified workers as independent contractors to avoid providing benefits or paying overtime. That practice is illegal under both federal and New Jersey law, and the state has made worker misclassification a top priority for enforcement.
Why Misclassification Matters
Misclassification has serious consequences on both sides. Employees who are labeled as contractors may lose out on overtime pay, wage protections, and access to unemployment or workers’ compensation. Employers who misclassify workers, whether intentionally or not, can face lawsuits, fines, and back-pay obligations under laws like the federal Fair Labor Standards Act and New Jersey’s Wage and Hour Law. A state law passed in 2019 even increased penalties for companies that misclassify workers, creating more liability and stronger enforcement tools for regulators. For independent contractors, the consequences are also significant. Unlike employees, contractors cannot easily file wage claims and usually have to go to court to enforce their contracts, a process that can be difficult and costly.
The ABC Test
To resolve disputes about worker classification, New Jersey applies the ABC test. The test starts with the presumption that a worker is an employee, and it is up to the employer to prove otherwise. To do so, the employer must show three things: first, that it does not control or direct how the worker performs their job; second, that the worker’s tasks fall outside the company’s regular business operations or are performed off-site; and third, that the worker is engaged in their own independently established trade or business. If even one of these elements is not met, the worker must legally be treated as an employee.
The New Jersey Supreme Court has reinforced this standard in several rulings, and now the NJDOL is seeking to add it to the NJAC. Doing so would not create a new law, but it would strengthen the way the test is applied and make it more difficult for employers to defend questionable classifications.
Why the NJAC Proposal Matters
The reason this proposal has been making news is because of its impact. By codifying the ABC test into the NJAC, regulators would no longer have to rely solely on court decisions to apply it. Instead, the Department of Labor would have direct authority to use the test in investigations and enforcement actions. This change would make it easier for the state to crack down on misclassification, creating more certainty for workers but more pressure on employers.
Who Gains and Who Loses
The proposal is widely seen as good news for workers, who would gain stronger protections and clearer avenues to challenge misclassification. It is also a benefit for the state, since regulators would be able to act more decisively when enforcing wage and labor laws. On the other hand, the proposal has raised concerns among employers. Businesses that depend heavily on contractors, such as those in construction, trucking, or gig-based industries, may be forced to reclassify workers, pay higher labor costs, and provide benefits they had not previously budgeted for. That shift is why the issue has drawn so much attention in the news.
Final Takeaway
New Jersey has long been known as a worker-friendly state, and the move to codify the ABC test into the NJAC reflects that ongoing trend. For workers, the proposal represents stronger rights and protections against being misclassified. For employers, it signals increased scrutiny, tougher enforcement, and higher risks if they fail to comply. The debate over this rule captures the broader tension between worker protections and business flexibility, and it is likely to remain a hot topic as the state continues to strengthen its labor laws.
If you have questions about how these changes may affect you or your business, please reach out to one of our experienced employment law attorneys for guidance.
Sharon M. Flynn, Esq., is a partner with Gebhardt & Kiefer, P.C., and practices primarily in the areas of general litigation, employment law, and insurance defense.
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Any statements made herein are solely for informational purposes only and should not be relied upon or construed as legal advice.