NJ’s 1099 crackdown could wreck the gig economy
New Jersey has a legitimate interest in making sure billion-dollar companies that deliberately misclassify employees as independent contractors simply to avoid taxes, benefits and basic employment protections are not allowed to game the system.
The government's latest solution is a disaster. The codification of the so-called "ABC" test goes too far and may all but eliminate 1099 work in the Garden State.
The government narrative is absurd claiming that the rules will somehow protect workers from exploitation.
Making it nearly impossible for legitimate independent professionals to continue working and meet the standards set by the Department of Labor will drive a lot of work out of state and underground.
This will have the opposite effect of the stated goals.
New Jersey will continue to see adjusted gross income cascade into more business-friendly states and lose additional tax revenue when a significant amount of the 'gig' economy goes underground.
What New Jersey’s ABC test could mean for workers
On October 1, regulations adopted by the New Jersey Department of Labor and Workforce Development governing the state’s ABC test for independent contractors are scheduled to become operative.
Here's the basic definition for the test:
A — AUTONOMY: The worker must be free from the company’s control or direction, both under the contract and in practice.
B — BUSINESS / PLACE OF BUSINESS: The service must either be outside the company’s usual course of business OR be performed outside all of the company’s places of business.
C — INDEPENDENT BUSINESS: The worker must be customarily engaged in an independently established trade, occupation, profession or business.
The Department says the regulations do not create a new ABC test.
Instead, NJDOL says it is simply clarifying existing law and codifying decades of court decisions governing whether someone should legally be considered an employee or an independent contractor.
That’s the state’s argument.
The New Jersey Business & Industry Association is raising serious questions about whether this is really just a harmless codification of existing law.
In a September 8 article, NJBIA noted that after the rule was officially adopted in May, the Sherrill administration imposed a 120-day stay to provide time to work with the Legislature on statutory changes.
Yet, as NJBIA pointed out, those changes had not been enacted as the October 1 effective date approached.
That alone should give lawmakers pause.
If a rule requires a four-month delay so the Legislature can consider fixing the law around it, why rush to put it into effect before those questions are resolved?
NJBIA is asking the administration to delay implementation until July 1, 2027, arguing that too many questions remain for freelancers, businesses and consumers who rely on independent work.
There is another point from NJBIA that deserves attention.
The association argues that New Jersey is taking a framework rooted in a labor market from roughly 90 years ago and applying it as the default standard to a modern economy built around consulting, project work, digital platforms and independent professionals.
That is exactly the problem.
The economy has changed dramatically over the past few years since Covid, let alone over the past 90 years.
The law should be capable of distinguishing between a company trying to get away with paying less than legally required through misclassification of workers and a person who is a legitimate independent contractor.
Under the ABC test, a worker is presumed to be an employee unless the business can establish all three parts of the test.
Given the fact that there are more than 1.7 million independent contractors in New Jersey, this is a potential wrecking ball to our economy.
Think about how many people are working a second job just to pay the bills.
Think about all the moms coming back into the workforce after having children and trying to balance being a mom and earning money to stay above water, in one of the most expensive states in the country.
According to the rules, the worker must be free from the company’s control or direction, the work must either be outside the company’s usual course of business or performed outside all of its places of business, and the worker must be engaged in an independently established trade, occupation, profession or business.
So basically, it's nearly impossible to qualify.
Given the strong support from unions like the AFL-CIO and their cozy relationship with Democrat politicians, maybe that's the goal.
If you are concerned, you should be.
Talk to your tax preparer and explore your options. That's exactly what I will be doing.
How the rules could affect independent professionals
I’m a good example of someone with multiple jobs, including contractor work. As a broadcaster and host, I provide services to different media companies.
Outside of Townsquare, where I am a w-4/W-2 employee, I negotiated contracts with Newsmax and ONNJ.
It's up to me to accept or reject work that is offered.
As a contracted worker, I'm able to maintain separate professional relationships and earn income from multiple sources, this includes television and live events.
Since I broadcast mainly from the studio in New York, am I in jeopardy of losing that status based on criteria "B"?
We'll see, but Newsmax is a big company.
If I'm valuable enough as a host, they have the resources to pivot and reclassify.
What about the little guy? How many local, small businesses can afford to take on W-2 employees?
This is yet another assault on both the workers who will have their livelihoods jeopardized, and the businesses that can simply not afford another Trenton unfunded mandate.
Why should the government presume that someone in that position needs to be an employee?
Consultants, photographers, writers, designers, technology professionals, trainers, musicians, tradespeople and countless other New Jerseyans may genuinely prefer independence to traditional employment.
Independent contracting can mean giving up certain benefits associated with W-2 employment, but it can also provide something extraordinarily valuable: freedom.
Freedom to choose clients.
Freedom to negotiate compensation.
Freedom to work for several companies.
Freedom to build your own business.
Freedom to walk away.
The government absolutely should prosecute businesses that disguise ordinary employees as contractors to evade their legal obligations.
New Jersey already has substantial authority to investigate and penalize worker misclassification, but enforcement against fraud should not become a presumption against independence.
Why Prong B is raising concerns
The particularly troubling portion of the ABC test is Prong B.
A business generally must show that the service is outside its usual course of business or is performed outside all of its places of business.
NJBIA Policy Analyst Jack Kelly argues that the Department’s interpretation of “usual course of business” could mean that when a worker performs a compensated service from which the business earns revenue, the worker is likely to be viewed as operating within that company’s usual course of business.
Consider what that could mean in practice.
Should a freelance television host become an employee because television programming is the network’s business?
Should a freelance writer become an employee because a publication is in the business of publishing writing?
Should a photographer working for several media organizations lose independent status because those companies publish photographs?
Those are not academic questions. They go directly to whether people can continue structuring careers around multiple clients and independent professional relationships.
NJBIA also makes another important point: a written independent-contractor agreement or the issuance of a 1099 does not, by itself, establish independent-contractor status.
If the business cannot satisfy every applicable prong of the state test, New Jersey can treat the worker as an employee regardless of what the parties themselves agreed to call the relationship.
NJDOL maintains that the regulations provide clarity, protect legitimate independent contractors and create a level playing field for businesses that properly classify workers.
The Department also revised portions of its original proposal following public comments. Those arguments deserve to be heard.
Worker misclassification is real and should be punished, but so should the voices of the people who actually choose independent work.
NJBIA says nearly 10,000 comments opposing the proposal were submitted during the rulemaking process.
There is another group whose rights deserve protection: people who don’t want the government deciding that they should be employees.
New Jersey should distinguish between someone being forced into a 1099 arrangement to avoid employment obligations and an established professional voluntarily choosing to operate independently.
Those are not the same workers.
They should not be treated as though they are.
At a minimum, the October 1 implementation should not become an artificial deadline that prevents lawmakers from resolving legitimate questions about how these rules will work in the real world.
When two sophisticated parties freely decide that an independent-contractor relationship works for both of them, government should be very careful about standing between them.
New Jersey needs to adopt a new attitude that encourages people to enter the 'gig' economy.
We should be facilitating business expansion, which can happen faster if 1099's are encouraged instead of punished.
The post above reflects the thoughts and observations of New Jersey 101.5 talk show host Bill Spadea. Any opinions expressed are Bill's own
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The post above reflects the thoughts and observations of New Jersey 101.5 talk show host Bill Spadea. Any opinions expressed are Bill's own.
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