New Jersey independent contractor regulation with ABC test is in effect

Changes moderate the original proposal

Noting that the initial proposal from last year was modified in such a way that it was seen as less punitive, Reibstein wrote recently that “the final regulation takes a more moderate regulatory approach than the proposed regulation issued in April 2025. However, the new regulation still carries out one of the most business-unfriendly tests for IC status in the country and interprets that test in a particularly unhelpful manner.”

The New Jersey law inevitably brings a comparison to California’s AB5 law which codified the ABC test in that state. However, that was a process that saw the state legislature pass a law that was signed by the state’s governor. 

By contrast, what happened in New Jersey is a rulemaking process that creates a standard which can be used by a regulator or a court in reaching a decision where IC status is a factor.

The ABC test has always been seen as a standard that was more likely to conclude that a worker is an employee rather than an independent contractor. That can impact the relationship between employer and worker if the latter thought he or she was independent on a host of issues: control, minimum wage, worker’s compensation…the list goes on.

The ABC test, while possibly having slightly different verbatim definitions, says to be legally considered an independent contractor, three standards must be met:

A: The worker must be free from control and direction.

B: The work must be “outside the usual course of the hiring company’s business.” That is particularly problematic in trucking, where a trucking company can have as much as 100% of its freight needs serviced by an independent contractor.

c: The worker must be “customarily engaged in an independent trade, occupation, profession, or business that has lasting enterprise and independent viability.”

No breaks for anybody

Unlike when AB5 went into effect, the New Jersey regulation does not have any carve-outs for particular industries hard hit by either of the laws.

The California list is a hodgepodge, ranging from surgeons to translators. New Jersey is a “clean” regulation in that it covers everybody, for better or worse.

Opponents were not necessarily clamoring for carve-outs. 

In a prepared statement released by the New Jersey Chamber of Commerce, criticizing the new regulation, Tom Bracken, the president and CEO of the chamber, said “(New Jersey) should not follow California’s path of responding to problems with its independent contractor law by creating numerous exemptions and carve-outs for specific professions and industries. That approach creates an increasingly complicated patchwork of rules and even more uncertainty.”

He said “New Jersey needs a clear, consistent and workable standard that applies fairly across our economy.”

Instead, Bracken called for a delay of the implementation. 

The ABC test could be found in the state’s body of law regarding IC status prior to the rulemaking. Some of its backers had tried to downplay its implementation by noting it simply put meat on bones that already were there.

But that was not how NJBIA President and CEO Michele Siekerka, president and CEO of the New Jersey Business & Industry Association, saw things. 

“(The state’s Department of Labor) has dismissed this adoption as merely the codification of already existing regulatory actions and behavior, when, in fact, it is now leaving open an overly broad interpretation of an ABC framework from nearly a century ago,” she said in a prepared statement. “In New Jersey, this is now the legal default, and a virtually impossible standard to meet, without any acknowledgement of the realities of the modern gig economy.”

Nationwide impact

Reibstein noted in his latest commentary that there are nationwide implications from the New Jersey law.

“While some companies may mistakenly regard this New Jersey regulation as only governing businesses located or operating a facility in New Jersey, it also impacts companies operating on a nationwide basis that engage any New Jersey workers who perform services from their home offices or other business locations in New Jersey,” he wrote.

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