When “Independent Contractor” Becomes Illegal

Last Updat­ed on Decem­ber 27, 2023 

New Jer­sey isn’t play­ing around when it comes to work­er mis­clas­si­fi­ca­tion. This year, the state filed its first law­suit against two ship­ping and logis­tics com­pa­nies, STG Logis­tics and STG Drayage, for alleged­ly mis­clas­si­fy­ing over 300 truck dri­vers as inde­pen­dent con­trac­tors. This isn’t just a slap on the wrist – the state is seek­ing mil­lions in back wages, penal­ties, and fines.

When “Independent Contractor” Becomes Illegal: New Jersey Takes a Stand Against Worker Misclassification

But why is this such a big deal? Mis­clas­si­fy­ing employ­ees as inde­pen­dent con­trac­tors has seri­ous con­se­quences for both work­ers and the state. Work­ers lose out on vital ben­e­fits like min­i­mum wage, over­time, unem­ploy­ment, and work­ers’ com­pen­sa­tion. Mean­while, the state miss­es out on tax­es and con­tri­bu­tions to crit­i­cal programs.

So, what’s the dif­fer­ence between an employ­ee and an inde­pen­dent con­trac­tor? In New Jer­sey, it comes down to the “ABC test.” A work­er can only be clas­si­fied as an inde­pen­dent con­trac­tor if the com­pa­ny can prove all three of these things:

• A) The indi­vid­ual is large­ly free from con­trol or direc­tion over the per­for­mance of their work. 
• B) The type of work per­formed is out­side the com­pa­ny’s usu­al course of busi­ness, or the work is per­formed out­side of the com­pa­ny’s place (or places) of business. 
• C) The indi­vid­ual has their own inde­pen­dent trade, job, pro­fes­sion, or business.

In the case of STG Logis­tics and STG Drayage, the state alleges that the com­pa­ny failed to meet any of these require­ments. The dri­vers were tight­ly con­trolled, assigned routes, mon­i­tored by GPS, and even had their trucks leased exclu­sive­ly to the com­pa­ny. This lev­el of con­trol is a dead give­away for an employ­er-employ­ee rela­tion­ship, not an inde­pen­dent con­trac­tor one.

The consequences of misclassification are severe. In this case, the state is seeking:

• Back wages: Mil­lions of dol­lars in unpaid wages for the mis­clas­si­fied drivers.
• Penal­ties: Large finan­cial penal­ties for vio­lat­ing New Jer­sey’s labor laws.
• Fines: Addi­tion­al fines for each vio­la­tion of the law.
• Stop-work orders: The pow­er to shut down the com­pa­ny’s oper­a­tions if they con­tin­ue to mis­clas­si­fy workers.

This law­suit is a clear mes­sage from New Jer­sey: if you mis­clas­si­fy work­ers, you will be caught, and you will pay the price. It’s a vic­to­ry for work­ers who have been denied their right­ful ben­e­fits and a warn­ing shot to oth­er com­pa­nies who might be tempt­ed to cut cor­ners by mis­clas­si­fy­ing employees.

2021 Workers Compensation Protection Law in New Jersey

But this isn’t just about one law­suit. New Jer­sey has been crack­ing down on work­er mis­clas­si­fi­ca­tion for years. In 2021, Gov­er­nor Phil Mur­phy signed a series of laws that strength­ened the state’s enforce­ment pow­ers and increased penal­ties for vio­la­tors. These laws include:

• The abil­i­ty to file law­suits in Supe­ri­or Court: Pre­vi­ous­ly, the state could only pur­sue mis­clas­si­fi­ca­tion claims through an admin­is­tra­tive process. Now, they can take com­pa­nies direct­ly to court, where the penal­ties are much steeper.
• Increased stop-work order author­i­ty: The state can now shut down a busi­ness for even a sin­gle vio­la­tion of wage, ben­e­fit, or tax laws. This is a pow­er­ful tool to force com­pa­nies to com­ply with the law.
• The cre­ation of a new enforce­ment unit: The Office of Strate­gic Enforce­ment and Com­pli­ance (OSEC) was cre­at­ed to specif­i­cal­ly tar­get and inves­ti­gate work­er misclassification.

Employers Pay Attention

So, what does this mean for employ­ers? It’s sim­ple: play by the rules. If you have any work­ers who might be bor­der­line cas­es, err on the side of cau­tion and clas­si­fy them as employ­ees. It’s not worth the risk of get­ting caught and fac­ing severe penalties.

Here are some tips for employ­ers to ensure they are clas­si­fy­ing work­ers correctly:

• Con­sult with an attor­ney: An employ­ment lawyer can help you under­stand the law and clas­si­fy your work­ers correctly.
• Review your work­er clas­si­fi­ca­tion poli­cies: Make sure your poli­cies are up-to-date and reflect the lat­est laws.
• Train your man­agers: Edu­cate your man­agers on the dif­fer­ence between employ­ees and inde­pen­dent con­trac­tors and how to iden­ti­fy misclassification.
• Doc­u­ment every­thing: Keep detailed records of your work­ers’ duties, com­pen­sa­tion, and control.

Work­er mis­clas­si­fi­ca­tion is a seri­ous issue with real con­se­quences. New Jer­sey is tak­ing a strong stand against it, and oth­er states are like­ly to fol­low suit. Don’t get caught on the wrong side of the law. Make sure you are clas­si­fy­ing your work­ers cor­rect­ly and pro­tect­ing your busi­ness from cost­ly penalties.

Remem­ber, pro­tect­ing work­ers’ rights and ensur­ing fair com­pe­ti­tion are not just legal oblig­a­tions, they are also eth­i­cal imper­a­tives. By prop­er­ly clas­si­fy­ing your work­ers, you are not just avoid­ing fines, you are build­ing a fair­er and more just econ­o­my for everyone.