Listen to this article

The basics:

• NJ adopts updated ABC test worker classification rules
• Rule clarifies independent contractor vs employee status
• Changes follow public comment period under Sherrill administration
• Business groups warn of impact on gig economy

A controversial rule governing how workers are classified in New Jersey will move forward, after the state Department of Labor and Workforce Development formally adopted regulations Tuesday pertaining to the state’s “ABC test.”

The enactment keeps a heated, ongoing debate at the forefront following months of review by the new administration in Trenton. As NJBIZ has extensively reported, the proposal sparked intense debate among policymakers, business groups and independent workers over the future of freelance and gig work.

The regulation traces back to a proposal first introduced under Gov. Phil Murphy in May 2025, part of a broader push to crack down on worker misclassification. The Murphy administration did not adopt the rule before leaving office, leaving it in the regulatory pipeline for the incoming Gov. Mikie Sherrill administration to decide its fate. May 5, 2026, marked the deadline for Sherrill’s team to either abandon or adopt the proposal.

When Sherrill took office in January, she issued Executive Order No. 7. The order imposed a 90-day freeze on new and pending regulations to allow for review. That paused the contractor rule — along with others still in the pipeline.

Learning the ABCs

At the time, Sherrill said the moved aimed to eliminate “red tape” and ensuring regulations aligned with her administration’s priorities. Meanwhile, business groups specifically pointed to the independent contractor rule as a major concern.

Following that review, the administration ultimately moved forward – with revisions – ahead of the May 5 deadline.

The state says the new rule intends to clarify how the longstanding ABC test is applied when determining whether a worker is an independent contractor or an employee under state law.

According to NJDOL, it consolidates decades of legal precedent – including key New Jersey Supreme Court rulings – and applies across statutes such as the Unemployment Compensation Law, Wage and Hour Law and Wage Payment Law.

State officials say the changes intend to reduce ambiguity, protect workers and ensure fair competition among businesses by:

• Providing clearer, more consistent standards to help employers classify workers correctly from the outset
• Reinforcing protections for legitimate independent contractors
• Establishing more transparent enforcement expectations
• Leveling the playing field by cracking down on misclassification

The final version also reflects feedback gathered during an extended 90-day public comment period. Changes included the removal of certain examples that employers argued created confusion.

Setting expectations

“We heard from New Jersey’s business community and workers — and we acted on it. We removed provisions in the draft rules that created uncertainty and built a framework shaped by their input, one that protects legitimate independent contractors, supports employees, and respects businesses that follow the rules,” said acting Labor Commissioner Kevin Jarvis. “At its core, this action has always been about protecting workers through fairness and clarity.

“When expectations are set, responsible employers can compete on a level playing field, without being undercut by those who misclassify workers.”

The NJDOL argues that the rule does not change the ABC test itself, but clarifies how it is interpreted.

To classify a worker as an independent contractor, employers must still satisfy all three prongs: (A) demonstrating freedom from control, (B) work performed outside the usual course or place of business, and (C) engagement in an independently established business.

The regulation is expected to be published June 1. It will take effect Oct. 1, following a 120-day phase-in period. That window could prove critical as opposition persists.

Stopping short

Business groups say the revisions do not go far enough.

“For over a year, NJBIA has been out front explaining the significant challenges our job creators, our gig workers and our entrepreneurs would face if this Murphy era rule proposal was adopted as stated, effectively grinding significant portions of the gig economy to a halt in New Jersey,” New Jersey Business & Industry Association President and CEO Michele Siekerka said.

While acknowledging the review process included some changes, Siekerka said the outcome remains disappointing.

“While some of our suggested changes were included, it is definitely a disappointment that any form of a new ABC rule proposal is advancing toward adoption,” she said.

However, NJBIA said the 120-day stay provides an open window to work with lawmakers on potential statutory adjustments.

While some of our suggested changes were included, it is definitely a disappointment that any form of a new ABC rule proposal is advancing toward adoption.
– Michele Siekerka, NJBIA president and CEO

“We reiterate the need for independent contractors and businesses to have access to the flexible job opportunities they need and desire, as well as the predictability the whole of the business community needs in understanding the rules distinguishing independent contracts from employees that still fails to exist today under these rules,” said Siekerka.

‘Far from done’

NJBIA argues the rule still lacks clarity and predictability.

The group warns it could limit flexible work opportunities and increase costs for businesses. NJBIA also noted the measure would disproportionately impact groups that rely on independent work arrangements. The organization also pointed to the more than 9,500 public comments submitted during the rulemaking process, many in opposition, as evidence of widespread concern.

“Our work here is far from done. We will continue to work alongside the Legislature and administration toward a further revised rule that recognizes the need to preserve the exact jobs and opportunities that remain in jeopardy,” said Siekerka.

With the rule now adopted but not yet in effect, the focus shifts to whether further changes emerge before October. Or, if the state moves ahead with the policy, as is, which continues to divide Trenton, businesses and the independent workforce.

More details on the new rule as well as NJDOL responses public comment questions are available here.