Murphy signs laws cracking down on worker misclassification

Gov. Phil Murphy approved a quartet of labor rights bills meant to crack down on worker misclassification, a practice that proponents say cheats the state out of tax revenue and workers out of key labor protections.

Under worker misclassification, employers – often illegally – classify staff as independent contractors rather than employees–meaning they can skimp out on state taxes and job protections. A task force that Murphy convened to gauge how the state can clamp down on the practice previously reported that New Jersey misses out on tens of millions of dollars in unpaid employment taxes because workers are misclassified.

Murphy, at a remotely held July 8 bill-signing event, said that the 2018 audit of just 1% of employers showed that a combined 12,300 workers were cheated out of $460 million in wages, and the state out of $14 million of taxes.

“The cost doesn’t just drag down families. It drags down our economy,” and at a time “as our economy continues to come back from the pandemic,” Murphy said.

And the practice has increased by upward of 40% in the past decade, according to the task force.

“They don’t pay taxes, they don’t pay worker’s [compensation]. They’re paying nothing,” Senate President Stephen Sweeney, D-3rd District, added on July 8.

Three measures were introduced in June and garnered final approval in the state Senate on June 30 – the day before lawmakers break for summer recess and begin to focus on their reelection campaigns. A fourth measure was introduced in January 2020 and approved at the start of last month.

New Jersey Labor Commissioner Robert Asaro-Angelo said that over the past year his department has used existing power, already expanded via prior laws Murphy approved, to fine, name and shame, and shut down work sites of guilty companies.

A look at the legislation

Assembly Bill 5890 would allow the New Jersey Department of Labor and Workforce Development to order worksites to shut down if they were found to have taken part in the illegal practice, and to levy $5,000 fines for each day they ignore the order. Employees are entitled to pay for the first 10 days of the stop-work order.

State labor officials already have that authority under a bill Murphy signed in January 2020, but this measure broadens the labor department’s enforcement authority and the legal rights for workers and any companies involved in the matter. The Labor commissioner would have subpoena power for a business’s records. That measure takes effect in six months.

Assembly bill 5892 says that companies that misclassify workers “for the purpose of evading payment of insurance premiums” are by extension committing insurance fraud, and would be investigated by the authorities as such. That measure goes into effect immediately.

Assembly Bill 5891 creates an “Office of Strategic Enforcement and Compliance” to formally investigate allegations of worker misclassification and levy penalties against employers found to have taken part in the practice. The office would get $1 million in state funding to carry out its mission, and the measure would take effect immediately.

Assembly Bill 1171 requires contractors and subcontractors that bid for public work to file payroll statements with the state Labor Department in order for public officials to verify that those companies have not been cheating their workers out of wages and the state out of tax dollars. That law takes effect in six months.

The New Jersey Business & Industry Association cautioned against the measures, saying in a June 30 statement that they “may lead to overzealous enforcement of employers who use independent contractors.”

In 2019 and early 2020, state lawmakers tried to push through a bill that would more easily classify independent contractors as employees. The bill could have meant that app-based companies such as Uber, Lyft and DoorDash would have to classify their workers as employees rather than gig workers.

All three companies could not be immediately reached for comment for this story.

Many state business groups lobbied against the measure, ultimately blocking it from reaching Murphy’s desk. Freelancers objected to the bill, worried that it would force them out of positions including babysitting, photography or music, and into inflexible and potentially lower-paying jobs.