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Employment Law Blog

New Jersey Adopts Potent New Weapon Against Worker Misclassification

July 19, 2021

On Thursday, July 8th, 2021, Governor Phil Murphy signed four bills into law as part of a bipartisan effort to protect workers from “worker misclassification.” Bills A.5890, A.5891, A.5892, and A.1171 are New Jersey’s most recent foray into regulating the so-called “gig economy.”

Worker misclassification is the practice of an employer improperly misclassifying its employees as “independent contractors.” Because New Jersey law requires employers to pay certain taxes and insurance benefits on behalf of their employees (but not for independent contractors), some employers have circumvented their obligations by deeming employees mere “independent contractors.” The Governor’s office estimates that, because of this practice, in 2018 alone New Jersey workers lost more than $450 million in wages and benefits.

Bill A.5892, the subject of this blog post, sweeps employee misclassification within the domain of the New Jersey Insurance Fraud Prevention Act (“IFPA”). In addition, the Bill provides a schedule of penalties and enforcement actions to be administered by the Commissioner of Banking and Insurance.

Particularly noteworthy is the new language added to section 4 of the IFPA, which provides that any “person, organization, or business” engages in worker misclassification by “purposely or knowingly” misrepresenting the status of an employee with the “purpose of evading the full payment of insurance benefits or premiums.” Section 4 now also provides that it is a violation of the IFPA to coerce, solicit, encourage, employ, contract, or otherwise conspire with another person to make such misrepresentations “for the purpose of wrongfully obtaining the benefits or of evading the full payment of insurance benefits or insurance premiums.”

The Bill also amended Section 5 of the IFPA such that the first violation now carries a civil and administrative penalty of $5,000; the second violation carries a civil and administrative penalty of $10,000; and every subsequent violation carries a civil and administrative penalty of $15,000. In addition to the penalties, the Commissioner of Banking and Insurance shall “order restitution to any insurance company or other person who has suffered a loss” as a result of the misclassification.

States have varied in their approach to regulating the gig economy, but this has been, and will be, a hot button issue for years to come. For example, California recently passed “Proposition 22,” which allows Uber and Lyft to retain drivers as independent contractors. “Prop 22” was the subject of more campaign spending than any other ballot initiative in state history. While states have taken different approaches in this arena, Governor Murphy has made clear that he intends New Jersey to remain staunchly pro-labor and to be at the forefront of protecting against worker misclassification.

Attorney: Steven Adler
Related Practice: Labor and Employment

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