It has been a rough couple of years in New Jersey for companies wishing or needing to hire independent contractors instead of employees. In January of 2020, Governor Murphy signed a package of bills that significantly increased the penalties for mis-designating workers as contractors and provided the Department of Labor and Workforce Development (“the Department”) with new enforcement powers to pursue alleged violators. Six months later, the governor signed additional anti-contractor legislation, this time, among other significant things, making it a violation of the New Jersey Insurance Fraud Prevention Act to fail to properly classify employees for the “purpose of evading the full payment of insurance benefits.” In other words, to avoid making payments to the unemployment fund.
These developments followed a number of years of aggressive enforcement by the Department under the prior laws. Even before recent legislation made mistakes costlier, it appeared to lawyers representing companies that the Department was straining to find that contractors were employees, applying an unfair interpretation of the legal standard that ignored or misinterpreted settled case law. Appeals to the New Jersey Appellate Division were not proving helpful. In several notable instances, the Appellate Division sided with the Department in unpublished, per curium decisions. It took an Appellate Division win by the company in East Bay Drywall, LLC v. Department of Labor and Workforce Development to convince the Supreme Court of New Jersey to grant certification. Anyone hoping that the court would endorse a less restrictive approach to the problem was sorely disappointed.