COVID-19 has and continues to change so much about how we live and work. A growing trend before the pandemic that has now soared involves New Jersey residents who want to be independent contractors or “freelancers,” not employees. For working parents especially with the uncertainty of school schedules, the flexibility freelancing allows is a lifesaver.
However, the state wants to force most workers to become employees regardless of their wishes. Losing independent contractor status raises revenue for the state as employees (and their employers) pay into various benefit funds. What’s more, employees in some cases are forced to join unions and then pay membership fees as well. California tried this and it nearly wrecked the freelance economy there, so its voters forced an about-face. In New Jersey, we are still moving full speed ahead in the wrong direction for people who want to be freelancers.
It is well-documented that New Jersey’s economy already is lagging behind similar states and this approach to freelancers is sure to continue hurting our recovery.
Our problems started in 2015 when the New Jersey Supreme Court adopted California’s controversial “ABC” test for determining whether workers are employees or not. Under this test, it is often difficult to avoid employee classification. Then, in 2019, our Legislature enacted, and Gov. Phil Murphy signed, a “Wage Theft Act” that substantially increased penalties for “misclassifying” employees as independent contractors and not providing pay and benefits that would have been due to them as employees.
These developments have huge, real-world consequences that are not yet fully appreciated by the business community. For example, commission-earning insurance agents in New Jersey have been treated as independent contractors for decades. But now, class action lawyers are seeking a big payout in court trying to reclassify them all as employees using the ABC test. Unfortunately, our state Attorney General’s Office has sided with the tort lawyers over the interests of the insurance agents, most of whom have no interest at all in becoming employees of a single insurance company. In another court case, class action lawyers are attempting to reclassify commission-earning real estate agents as employees under the ABC test. This upends another longstanding set of business relationships that have worked just fine for decades in New Jersey for both real estate brokers and salespeople alike.
So, what is the point of all this? Who is asking for it, and who benefits? Of course, no worker should be exploited into working for less pay than the law requires. Likewise, companies should not be able to avoid paying taxes or unemployment insurance for people who are acting as employees by simply calling them independent contractors. Properly enforcing the law, however, should not mean forcing people who choose to be independent contractors into employment relationships they don’t want. The state’s basic desire to boost government revenue and labor union participation by pushing widespread employee classification should not overcome otherwise lawful economic relationships.
Even worse, our state is throwing its considerable weight behind private class action lawsuits, which creates uncertainty for New Jersey’s employers. In these difficult times, this is the last thing New Jersey’s labor market needs. Fear of jackpot class action verdicts, when companies and freelancers have every reason to believe they are following the law, is exactly what the state should work to prevent. Otherwise, our economy will continue to falter.
Anthony Anastasio is president of the New Jersey Civil Justice Institute, which works to promote certainty and predictability in the law.