On Thursday afternoon, lawmakers approved a measure that would classify thousands of New Jersey independent contractors, freelance and gig economy workers as employees following hours of testimony from industry trade groups vying for carve-outs and exceptions to the new proposal.
Senate Bill 4204 is worded in a way that could profoundly impact businesses that rely on independent contractors, such as DoorDash Inc., Uber Technologies Inc. and Lyft Inc. — with the latter two having shown their opposition to the New Jersey measure.
Its passage in a 3-1 vote by the Senate Labor Committee comes hours after a report by Bloomberg Law that New Jersey labor officials told Uber, and its subsidiary Raiser LLC, they owe the state $523 million in employment taxes for workers who were wrongly misclassified as independent contractors over the past four years — on top of $119 million from interest and penalties.
“[It] tells you they’ve gone well beyond what the intent of the independent contractor is and it’s been abused,” the bill’s sponsor, Senate President Stephen Sweeney, D-3rd District, told reporters at an unrelated event later that day.
Uber said it would fight the labor department’s decision.
The measure has several aspects of a recently signed California measure – Assembly Bill 5 – which goes into effect Jan. 1, and limits when companies can classify their workers as independent contractors. In New Jersey, S4204 would tweak two of the three prongs in the “ABC test” that is used to separate employees from independent contractors.
The “A” prong of the test evaluates whether the worker would be free from any direction or control from the company. Under the “B” part, the work has to fall outside a company’s “usual course of business,” and under “C,” the worker has to be engaged in their own established and separate business.
Sweeney’s bill tweaks the “B” prong so that workers could not be exempt from employee status “solely because the service is performed outside of all the places of business of the enterprise for which the service is performed.” The language would bypass Uber’s arguments that their drivers would not be considered employees because those services fall outside of its “usual course of business,” which the company used to argue exemption from California’s Assembly Bill 5.
S4204 also tweaks the “C” prong so that even if someone does work for a company and also runs their own endeavor, they could only be exempt from employment status in the event that the work they do for the company is “of the same nature” as the work they perform in their independent venture.
That particular change could address an unintended consequence playing out in California, which drastically cuts down on how much work freelance journalists can do for media outlets. Because employers in California can only contract work “outside the usual course of business,” and a freelance journalist’s work makes up the bulk of that employer’s business, they could no longer be independent contractors under the new law.
Another amendment from Thursday would exempt realtors, accountants and insurance brokers from the changes of S4204. Sweeney said there would likely be other heavily regulated professions that could end up in the same boat.
Trade groups such as the New Jersey Food Council, which represents much of the state’s food industry, the American Automobile Association Clubs of New Jersey, the New York-New Jersey Motor Truck Association and the New York Shipping Association, which represents businesses that operate in the Port of New York and New Jersey, are all opposed the measure.
The groups argued Thursday that their respective industries rely heavily on independent contractors, who, because of the nature of their freelance work, are able to meet the demands of those sectors of the economy.
Lisa Yakomin, president of the NY-NJ MTA, said that trucking industry is dependent on “independent owner-operators” who “want to continue owning their own truck.” Making them into regular employees would drive up the costs that are ultimately passed down to consumers.
But the senate president, as well as labor groups who support the measure, countered that businesses classify many workers as independent contractors when in reality, they are employees.
“They’re depriving the workers protection and they’re also depriving the state, cheating the state out of revenue too,” Sweeney said.
“[S4204] will further expose to the public the uncomfortable truth that trucking companies have been trying to avoid for some time—that their practice of misclassification is already illegal,” Teamsters Vice President-At-Large Fred Potter said in a statement. Both that group and the AFL-CIO and the Communications Workers of America supported the measure Thursday.