New Jersey Proposes Rules to Codify ABC Test for Independent Contractor Classification

On May 5, 2025, the New Jersey Register published a proposed set of new rules, N.J.A.C. 12:11, submitted by the New Jersey Department of Labor and Workforce Development (NJDOL). The proposed rules would codify the “ABC Test” for determining whether a worker should be classified as an employee or an independent contractor in New Jersey. The NJDOL aims to reduce the imbalance of power between employers and workers and to protect workers’ rights in a more uniform approach by proposing to have the ABC Test solidified in a New Jersey statute. The NJDOL is currently accepting written comments from the public, for 60 days beginning on May 5, 2025, regarding these proposed rules.

What is the ABC Test?

The ABC Test is a three-step evaluation process for determining whether a worker is an independent contractor or an employee who is entitled to all of the rights, protections, and benefits provided by federal, state, and local laws. The proposed NJ rules would place the burden on employers to prove that their workers are independent contractors rather than employees under this test. Furthermore, the proposed rules would require that an employer must classify a worker as an employee unless and until the employer demonstrates that the worker is an independent contractor under all three of the following prongs:

Prong A: The putative employer must establish not only that the employer has not exercised control, in fact, but also that the employer has not reserved the right to control the individual’s performance. A putative employer need not control every facet of a person’s responsibilities for that person to be deemed an employee. Additionally, Prong A enumerates nine factors that may be considered when evaluating whether a worker has been, and will continue to be, free from control or direction over the performance of services.

Prong B: Whether a service is either outside the usual course of business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed. The phrase “places of business” refers to those locations where the enterprise has a physical plant or conducts an integral part of its business. The new rules also would illustrate examples of such external services.

Prong C: Whether a worker is customarily engaged in an independently established trade, occupation, profession, or business. Prong C includes seven factors that may be considered in the evaluation.

Where did the ABC Test come from?

The ABC Test, as developed and set forth by the NJDOL in its proposed rules, draws heavily from the New Jersey Supreme Court cases Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991) and East Bay Drywall, LLC v. Department of Labor and Workforce Development, 251 N.J. 477 (2022). The Court in East Bay Drywall reaffirmed its holding in Carpet Remnant Warehouse regarding the conjunctive nature of the ABC Test and reiterated that all three prongs must be satisfied for a worker to be considered an independent contractor. The decisions highlighted the enhanced deference given to administrative agencies in applying and enforcing statutory schemes, provided their findings are supported by the record and not arbitrary or capricious. The NJDOL, in adopting and codifying the Court’s ABC Test as established in a 30-year long line of precedents, seeks to continue consistently adhere to the principle that determination of employee versus independent contractor status under the ABC Test is a fact sensitive process requiring an evaluation in each case of the substance, not the form, of the employer-worker relationship.

How will the ABC Test impact employers and workers?

The proposed new rules would mitigate or eliminate possible confusion among employers and workers concerning employee-independent contractor classification status for the purpose of determining coverage under labor laws, including the Unemployment Compensation Law, the Wage Payment Law, the Wage and Hour Law, the Earned Sick Leave Law, and the Temporary Disability Benefits Law. The clarity provided by the proposed rules would diminish the risks or decrease the expenses that may be incurred by employers as associated with assessments for unpaid contributions, unpaid wages, or penalties levied by the NJDOL for violations of New Jersey labor laws. The proposed rules also would increase the number of workers being properly classified and thus increase the access to benefits and protections for workers who are misclassified as independent contractors rather than employees, especially with respect to those in the gig economy, such as rideshare drivers, food delivery workers, and online creators. The NJDOL states that the proposed new rules would have no impact on the generation and loss of jobs, the agriculture industry, the reporting, recordkeeping, and compliance requirements of small businesses.

For more information, you can visit the official site of the NJDOL.

Workers who believe they have been misclassified can also contact an employment attorney to file a lawsuit in court. The legal team at Miller Shah LLP has extensive experience representing misclassification matters. If you have any questions regarding this subject or this post, please fill out a form or call us toll-free at (866) 540-5505.