New NJ Misclassification Laws Increase Compliance Demands on EmployersJanuary 29, 2020 – Alerts
A new package of pro-employee laws regarding worker misclassification in New Jersey was recently signed by Gov. Phil Murphy, most of which have already taken effect and carry high-cost penalties. Briefly capturing the focus of each bill, they:
- Allow for stop-work orders against employers violating state wage, benefit and tax law;
- Provide assessment of penalties for violations in connection with misclassification of employees;
- Require employers to post a notice for their employees regarding employee misclassification;
- Create joint liability for employers and staffing agencies;
- Allow the Department of Labor and Workforce Development (DLWD) to list violators on a “wall of shame” on its website; and
- Allow the Commissioner of the DLWD (Commissioner) to access the employer’s tax documents.
Employers should ensure via audit that their workforce is properly classified (i.e., independent contractor vs. employee) to avoid high-cost penalties or consequences.
Stop-Work Orders (Assembly Bill No. 5838)
Under AB 5838, the Commissioner has the authority to issue a stop-work order against an employer, requiring cessation of all business operations at the specific place of business where, pursuant to an audit or investigation, any wage, benefit or employment tax law violation was found. The Commissioner shall serve a notification of intent to issue a stop-work order on the employer at the place of business or, for a particular employer worksite, at that worksite at least seven days prior to the issuance of a stop-work order.
The order shall remain in effect until the Commissioner finds that the employer has come into compliance and has paid any penalty deemed to be satisfactory to the Commissioner, or the Commissioner determines in a hearing that the employer did not commit the act on which the order was based. When requirements are met, the Commissioner issues an order rescinding the stop-work status.
A stop-work order could cause devastating financial consequences for an employer. For each day that the employer conducts business operations that are in violation of the stop-work order, the Commissioner may assess a civil penalty of $5,000 per day against the employer.
However, within 72 hours of receipt of the stop-work order, an employer has the right to appeal or contest the stop-work order. The employer is also permitted to seek injunctive relief if it can demonstrate that the stop-work order would be issued or has been issued in error.
Penalties for Misclassification of Employees (Assembly Bill No. 5839)
According to AB 5839, if the Commissioner finds that an employer failed to properly classify employees, the Commissioner is entitled to assess: (1) an administrative “misclassification penalty” up to a maximum of $250 per misclassified employee for a first violation and up to a maximum of $1,000 per misclassified employee for each subsequent violation; and (2) a penalty to be provided to the misclassified worker of up to 5% of the worker’s gross earnings over the past twelve months. These penalties are in addition to any other remedies or penalties authorized by law.
However, the new law takes due process into consideration. No administrative “misclassification penalty” may be issued unless the alleged violator received notice of the alleged violation and has had an opportunity to request a hearing before the Commissioner or his or her designee.
Employers Must Post Notice on Employee Misclassification (Assembly Bill No. 5843)
AB 5843 requires employers to conspicuously post a notice regarding employee misclassification. Specifically, under the bill, an employer’s notice must explain:
(1) Prohibitions against employers misclassifying employees;
(2) Standards that are applied to determine whether one is an employee or an independent contractor;
(3) Benefits and protections to which an employee is entitled under State wage, benefit and tax laws;
(4) Remedies under New Jersey law to which workers affected by misclassification may be entitled; and
(5) Information on how a worker or a worker’s authorized representative may contact, by telephone, mail and e-mail, a representative of the Commissioner to provide information to, or file a complaint with, the representative regarding possible worker misclassification.
An employer who violates any provision of this section shall be guilty of a disorderly persons offense and shall, upon conviction, be fined between $100 and $1,000.
Additionally, the new law has strong anti-retaliation provisions. Any worker terminated in retaliation for protected conduct (i.e., an inquiry or complaint to his employer, to the Commissioner or to his authorized representative regarding possible worker misclassification, or because the employee has caused to be instituted or is about to cause to be instituted any proceeding regarding worker misclassification under state wage, benefit and tax laws, or because the employee has testified in the proceeding) will be entitled to reinstatement plus back pay as well as legal fees and punitive damages equal to two times the lost wages and benefits.
Joint Liability for Employers and Staffing Agencies (Assembly Bill No. 5840)
Under AB 5840, employers and staffing agencies are jointly and severally liable for violations of the state’s wage and hour laws and State employer tax laws, including provisions of those laws prohibiting retaliation against employees for exercising their rights under any of those laws as well as laws regarding the misclassification of workers. A waiver of the provisions of this law is contrary to public policy and is void and unenforceable. However, employers may recover from staffing agencies expenses resulting from any violation of state wage and hour laws or other applicable law, and staffing agencies may recover the same from employers.
Additionally, owners, directors, officers and managers of the employer may be held individually liable for their role in misclassifying workers.
Noncompliant Employers Are Posted on a “Wall of Shame” (Senate Bill No. 4226)
SB 4266 permits the DLWD to post the information of a person (defined as any natural person, company corporate officer or principal, firm, association, corporation, contractor, subcontractor or other entity engaged in contracting) who violates State wage, benefit and tax laws on its website. As indicated below, being on this “wall of shame” could have potential economic consequences.
The DLWD is required to provide notice to the person of its intent to post the person’s name on the DLWD’s website 15 business days prior to the posting. A person who receives a notice of intent to be placed on the list has the right to request a hearing within 20 days. The bill provides that a person placed on the list is prohibited from contracting with a public body until the liability for violations of state wage, benefit, and tax laws have been resolved to the satisfaction of the Commissioner.
Tax Data Sharing Between State Treasury and DLWD (Senate Bill No. 4228)
SB 4228 amends existing laws to allow the Commissioner access to the employer’s tax information, statements, reports, audit files, returns or reports for investigative purposes when potential violations of any state wage, benefit and/or tax law are identified or suspected. This means that the Commissioner will have access to the employer’s financial records, or at least some of them, as part of their investigation into the employer’s potential violation of wage and hour laws.
For more information about these new laws or any questions about conducting workforce audits, please contact Lucy Li at 609.896.4576 or at [email protected], or any member of Fox Rothschild LLP’s Labor and Employment attorneys.