New Jersey Moves to Codify ABC Test: What Employers Must Know About the New Misclassification Rules
May 28, 2025
On April 28, 2025, the New Jersey Department of Labor and Workforce Development (NJDOL) proposed new regulations that would formally codify the state’s interpretation of the ABC test—the legal framework used to determine whether a worker is an employee or an independent contractor. These rules, once finalized, will apply under the Unemployment Compensation Law, the Wage and Hour Law, and the Wage Payment Law, and are likely to affect thousands of businesses statewide.
The proposed regulations draw heavily from precedents set by the New Jersey Supreme Court, including Carpet Remnant Warehouse and the landmark 2022 decision in East Bay Drywall. These cases clarified the standards for evaluating all three prongs of the ABC test. The NJDOL’s rule proposal now seeks to formalize these interpretations and reduce ambiguity for employers across industries.
Key components of the proposed rules include:
- Explicit guidelines on how to apply each prong of the ABC test;
- Recognition of the rights of genuine independent contractors to operate autonomously;
- Clear guidance to help prevent misclassification, which can deprive workers of benefits and expose employers to penalties;
- A continued focus on compliance and enforcement, consistent with the state’s broader worker protection efforts.
Notably, the rules emphasize that misclassification is not just a paperwork error—it’s a denial of core employment protections such as wage security, paid leave, and unemployment insurance. Since 2021, NJDOL has assessed over $10 million in misclassification penalties, and issued 185 stop-work orders to non-compliant employers.
What Employers Should Do Now
If your organization engages contractors, freelancers, gig workers, or project-based staff in New Jersey, now is the time to:
- Revisit existing independent contractor agreements;
- Audit job roles to ensure proper classification;
- Review business relationships for alignment with the three ABC prongs.
The 60-day public comment window on the proposal opens May 5, 2025. We will continue to monitor the status of NJDOL’s proposed regulations and provide additional updates.
Employers are encouraged to stay informed and take proactive steps to avoid liability.
For help reviewing classification policies or responding to NJDOL inquiries, contact Sheryl Galler at sgaller@booklawllp.com or Chaim Book at cbook@booklawllp.com.
