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Murphy’s Task Force Takes Hard-Line Approach Against Employee Misclassification


New Jersey Law Journal

September 16, 2019

New Jersey Governor Phil Murphy’s attention to employee-friendly workplace laws shows no sign of waning. In May 2018, Gov. Murphy signed Executive Order No. 25, which established the Task Force on Employee Misclassification. The Task Force, charged with advising the governor’s office on strategies to effectively combat employee misclassification and ensure compliance with wage and hour laws, comprises representatives from various state governmental agencies, including the Departments of Labor and Workforce Development (DOL), Treasury, Agriculture, Banking and Insurance, and Transportation. On July 9, 2019, after the Task Force held public forums throughout the state, where it allowed employers, employees and subject matter experts to voice comments and concerns about misclassification, it published a report with its recommendations to combat misclassification.

The report defines misclassification as “the practice of illegally and improperly classifying workers as independent contractors, rather than employees,” and claims that there has been an uptick in the number of misclassifications throughout the country, and specifically in New Jersey. Significantly, minimum wage and overtime laws apply to employees, but do not apply to independent contractors. Currently, the “ABC test,” adopted by the New Jersey Supreme Court in Hargrove v. Sleepy’s, 220 N.J. 289 (2015), is used to determine whether a worker should be classified as an employee or independent contractor. The “ABC test” presumes that an individual is an employee, unless the employer demonstrates:

    (A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
    (B) Such service is either 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; and
    (C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.

In its report, the Task Force outlines a comprehensive and aggressive approach that includes nine key recommendations to combat misclassification. The recommendations are outlined below:

1. Targeted Education and Public Outreach

First, the Task Force recommends focusing on spreading awareness about the illegality of misclassification. The Task Force suggests that a press strategy be developed to educate employers on their obligations under the wage and hour laws, and to reinforce that misclassification is closely monitored by the state and that findings of misclassification may result in harsh penalties. Further, the Task Force recommends that a DOL hotline, webpage and email address be created to enable individuals to report instances of misclassification, and that employers be required to post notices in the workplace about misclassification to inform workers of the illegal practice.

2. Strengthening State Contracting

The Task Force proposes that all employers who contract with or receive funding from the state contractually affirm that they are aware of the laws regarding worker classification and that their workers will be paid the proper rates for all hours worked. Further, the report states that in the event such employers misclassify workers, they should be at risk for losing their state contracts or state funding.

3. Interagency Coordinated Enforcement

Central to the Task Force’s strategy to combat misclassification is a call to all state agencies to coordinate interagency enforcement efforts. Such efforts may include interagency on-the-ground investigations and joint enforcement sweeps. For example, the report notes, state agencies like the Office of the Attorney General’s Division of Alcoholic Beverage Control, which presently collects and reviews payroll records, should share those records with the DOL. The Task Force points out that coordinated interagency efforts will help to pool together agency resources and ensure that investigation efforts are not duplicated.

4. Data Sharing

To assist with coordinated interagency enforcement efforts, the Task Force recommends that a network be established to allow for data sharing, subject to applicable confidentiality requirements, among state agencies. This network of shared information would serve as the basis for interagency investigations and would include information collected from regular field visits. It was further suggested that a Memorandum of Understanding that details the obligations of the data sharing network be implemented.

5. Cooperation with Neighboring States

Because many companies have operations in neighboring states, the Task Force recommends that neighboring states commit to help each other with wage enforcement efforts. Note that immediately after the release of the Task Force’s report, New Jersey acted on this recommendation. On July 9, 2019, the DOL entered into a reciprocal agreement, effective immediately, with Pennsylvania’s and Delaware’s Departments of Labor to “maximize each state’s wage and hour enforcement efforts.” The memorandum states that each state’s Department of Labor will: share relevant wage enforcement information, which includes, but is not limited to, wage claims, audit reports, investigation reports, payroll records, employer registration records, and internal labor department records; notify each other of potential violations of the others’ statutes; and assist each other with enforcement activities, such as investigations. The agreement is effective for three years and may be extended by agreement of the participating state agencies.

6. Cross-Training

The Task Force emphasizes that interagency cross-training is essential for coordinated enforcement efforts. As such, to support effective identification and referral of potential misclassification issues to the DOL, the report recommends that field investigators at various agencies be trained on the ABC test and other relevant laws. In a nod to the Task Force’s work, starting in January 2019, investigators from the Division of Consumer Affairs began to receive training on identifying employee misclassification.

7. Criminal Referrals

Although New Jersey law provides for criminal action against offending employers, legal action is generally limited to civil proceedings. However, this may soon change. The Task Force recommends that particularly egregious cases of misclassification be referred to the Office of the Attorney General to be criminally prosecuted.

8. Using Existing Workers’ Comp Laws to Bolster Misclassification Enforcement

The Task Force notes that independent contractors are generally not eligible for workers’ compensation coverage. As such, the Task Force recommends that the enforcement offices responsible for workers’ compensation laws add relevant misclassification laws to their focus.

9. Utilizing DOL’s Power to Revoke and Suspend Licenses

Lastly, under N.J.S.A. 34:15-57.4, the Commissioner of Labor has the authority to suspend or revoke any licenses held by an employer, if that employer is found to be in violation of the state wage, benefit, and tax laws; however, the Task Force holds that this power has never been used. The Task Force encourages the DOL to exercise this authority to combat misclassification.

In addition to the nine recommendations outlined above, the Task Force calls on the state legislature to act. The report proposes numerous pieces of legislation that the Task Force believes, if passed, would increase compliance with wage and hour laws.

First, the Task Force recommends that legislation be enacted to require employers to post notices in their workplaces about misclassification. Like other required postings, the notice would serve to inform employees about the relevant labor laws and provide contact information to report violations. The Task Force also proposes legislation that provides the DOL with authority to issue stop-work orders if findings of misclassification have been made. In this regard, Gov. Murphy already signed into law Senate Bill 2557, effective immediately, which permits the DOL to issue a stop-work order against any employer that pays less than prevailing wage rates if that employer is required to pay such rates. A stop-work order requires that an employer suspend all business operations at every work site until the DOL releases the stop-work order, which occurs only if the employer agrees to pay all owed wages and penalties. Employers are penalized $5,000 for each day they operate in violation of stop-work orders.

In keeping with the emphasis on data sharing, the Task Force proposes legislation that would enable the Division of Taxation to share tax information with the DOL for the purposes of research and investigations. Furthermore, the Task Force suggests that the DOL essentially maintain a blacklist, made available to the public, of employers that have unpaid final judgments for failure to pay wages, remit payroll taxes, or provide workers’ compensation insurance. Businesses that work with the listed employers could be held jointly and severally liable.

Lastly, the report includes legislative action that would hit at the pockets of offending employers. The Task Force encourages that legislation be passed to make employers found liable for misclassification responsible for investigative costs incurred by the DOL, and to create a misclassification-specific penalty of $5,000 for each misclassified worker.

It is yet to be seen whether all of the recommendations contained in the report will be implemented, but it is clear that action will be taken. As outlined above, in the short time since the report was published, legislation proposed by the Task Force has been passed by the state. In addition to Senate Bill 2557, the New Jersey Wage Theft Act (WTA) was signed into law on August 6, 2019, and many of its provisions mirror recommendations from the report. The WTA, the majority of which became effective immediately, includes provisions that: expose all business officers and employees to criminal liability for violations of wage and hour laws; increase fines and penalties under the Wage Payment Law and Wage and Hour Law; and allow stop-work orders to be issued for employers that fail to comply with final determinations by the DOL—all of which were proposed by the Task Force. Gov. Murphy has delivered his message loud and clear: the state will leave no stone unturned in aggressively working to combat employee misclassification. It is now more important than ever for New Jersey employers to properly classify all workers to avoid harsh punishments.

Reprinted with permission from the September 16, 2019 issue of the New Jersey Law Journal. © 2019 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. For information, contact 877-257-3382 or reprints@alm.com or visit www.almreprints.com.