New Jersey Labor Department Issues Final Regulations on Independent Contractor Status, Accepting Two Key Objections We Identified in Our Comments to the Proposed Rule

Yesterday, May 5, 2026, the New Jersey Department of Labor and Industry (the Department) announced in a press release that it was issuing final regulations on June 1, 2026, addressing the so-called ABC test for independent contractor (IC) status under a number of New Jersey laws, including its Wage and Hour Law and its Wage Payment Law. It had been over a year since the Department announced that it was issuing a proposed regulation on the ABC test for IC status. We published a blog post on April 30, 2025, titled “Garden State May Soon Become Even Less Hospitable to [the Use of] Independent Contractors Than the Golden State [California].” Our blog post focused on two key deficiencies in the proposed regulations, and we detailed those issues in formal Comments that we submitted to the Department on July 31, 2025, during the public comment period. The Department’s press release includes a 205-page “Summary” of the Comments filed, the Department’s response to the Comments, and the changes made to the proposed regulations. Notably, the Department’s final regulation indicates that it agreed with our Comments, rectifying the two key deficiencies we highlighted. But other problems with the final regulation remain, as more fully described below. On the whole, the final regulation continues to make it even harder for businesses using an IC business model to operate with otherwise legitimate ICs in New Jersey, which has an ABC test that remains one of the strictest tests for IC status in the nation. For this reason, prudent companies have resorted to a process such as IC Diagnostics ™ to enhance their IC compliance in New Jersey and other states. The Two Key Objections We Identified and How the Department Changed Its Regulations Our first objection: compliance with law to be treated as a form of control The ABC test states that a worker is presumed to be an employee, and not an IC, if the alleged employer cannot establish all three prongs of the ABC test. Prong A requires that the worker will be deemed an employee and not an IC unless the alleged employer can establish that the worker “has been and will continue to be free from control or direction over the performance of ... service[s], both under his contract of service and in fact.” The proposed regulation stated: “When evaluating under Prong A of the ABC test whether an individual has been and will continue to be free from control or direction over the performance of services, any control or direction that the putative employer has exercised, or has reserved the right to exercise, in order to be in compliance with a law or rule shall be considered; that is, it shall be given equal weight to what would be given any other control or direction that the putative employer has exercised or has reserved the right to exercise.” N.J.A.C. 12:11-1.3(f) (Emphasis added). We summarized in our formal Comments our first objection to the proposed regulations, stating: “The Department’s proposed regulation as to Prong A ... state[s] that an independent contractor agreement including language that the IC comply with all applicable laws is to be deemed as a form of direction and control over the service provider, notwithstanding the fact that that all service providers ... are of course required to comply with applicable laws, and despite the fact almost all independent contractor agreements in this and every other state in the U.S. contain such language. Unless this part of the regulation is corrected, it will foster the elimination of almost all independent contractors in this State.” The Department’s final regulation accepts the position articulated in our first objection to the proposed regulations. It deletes the objectionable language and substitutes the following new wording: “Actions taken by a putative employer solely to comply with federal, state, or local, laws or regulations shall not, standing alone, be considered evidence of control or direction under Prong A.” (Emphasis added.) Other significant changes in the final regulation regarding Prong A include the removal of language that an alleged employer’s requirement that a worker use a digital app or software that is primarily controlled by the company is evidence of control under Prong A. While these changes considerably lessen the harshness of the final regulation on the “control” prong, it remains objectionable in many ways including its focus on “control” factors that tend to demonstrate employee status and the near universal absence of factors tending to show IC status. Our second objection: off-site locations to be treated as if they were part of the alleged employer’s places of business The B Prong of the ABC test requires that the worker shall be presumed an employee and not an IC unless the alleged employer can establish either of the two alternatives in Prong B: that the worker’s service is “outside the usual course of the 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.” Our second objection in our formal Comments to the proposed regulations addressed the second part of Prong B. We stated: “The proposed regulation takes an extraordinarily expansive view of the second part of the B Prong. It states that a hiring party’s ‘places of business’ not only include ‘locations where the enterprise has a physical plant or conducts an integral part of its business,’ but may also include ‘locations outside of the putative employer’s physical plant, where the services performed by the individual [worker] are an essential component of, rather than ancillary to, the putative employer’s business.’ ... It is unclear what those words ‘essential’ or ‘ancillary’ mean in the context of the proposed regulation, then gives illustrations that do little more than create an enormous amount of uncertainty – even for lawyers, let alone businesspersons, contractors, and workers – and will lead to years of prolonged litigation over two otherwise meaningless words that appear nowhere in the ABC test. ... But even more problematic is that this part of the proposed regulation appears to be directly contrary to one of the two main New Jersey Supreme Court cases cited in the ... proposed regulation: Carpet Remnant Warehouse.” The Department’s final regulation accepts the point made in our second comment to the proposed regulations. It deletes in its entirety the objectionable language in the proposed regulation, including the reference to places outside the alleged employer’s physical plant as being equivalent to the alleged employer’s places of business for purposes of the second part of Prong B, and also deletes the confusing references to off-site locations that are “essential” or “ancillary” components of the company’s business. Notably, three months after we submitted our formal Comments, we published a blog post about a new judicial decision issued by the New Jersey Appellate Division that echoed the same argument we made in our objection dealing with the second part of the B Prong. The post was titled, “New Jersey Courts May Be Limiting the Labor Commissioner’s Effort to Curtail Independent Contractors in That State,” and it noted that the court concluded, consistent with our second main comment, that off-site client venues where a disc jockey performed services were not equivalent to the alleged employer’s place of business, citing to the same New Jersey Supreme Court case upon which we relied in our second objection: Carpet Remnant Warehouse . Other Meaningful Changes in the Final Regulations In addition to removing the objectionable language in the second part of Prong B about off-site locations being equivalent to the alleged employer’s places of business if they are “essential” to the company’s business, the final regulation made other notable changes to this part of the B Prong. One of the most important is the addition of a new subsection stating: “An individual’s personal residence where they perform remote work, i.e., performing services from a location other than a location operated by the [alleged] employer, shall not be considered among the putative employer’s places of business.” (Emphasis added.) The Department also made a meaningful change to the C Prong, which presumes a worker is an employee and not an IC unless the alleged employer can establish that the worker “is customarily engaged in an independently established trade, occupation, profession or business.” The final regulation deletes the following language: “Under Prong C, what is relevant is not whether an individual was free to work for others, but rather, whether the individual did perform services for, and receive remuneration for the performance of such services from, others during the relevant period ....” By so doing, the final regulation implicitly recognizes that a legitimate IC may choose to provide services only to one company without impairing their status as an IC in New Jersey. The press release issued by the Department indicates that the final regulation will be effective October 1, 2026. It is anticipated that one or more lawsuits will be filed seeking to invalidate the regulation, and some business groups and legislators opposed to the new regulations have stated they plan to seek legislative action to block its implementation.