Governor Phil Murphy today released a comprehensive report from the Task Force on Employee Misclassification, vowing to intensify efforts to curtail the widespread and illegal practice of misclassifying workers as independent contractors instead of employees, which cheats some workers out of benefits and wages, hurts law-abiding business owners, and costs the state tens of millions of dollars a year in lost employment-related tax revenue.
The Governor has given the New Jersey Department of Labor and Workforce Development (NJDOL) new tools to help put an end to misclassification and noted that his administration has already acted on eight of the task force’s 16 recommendations.
Additionally, while addressing the New Jersey State Building & Construction Trades Council’s annual convention, the Governor announced his intent to sign a bill (A-108/S-2557) giving the NJDOL the power to issue stop-work orders whenever an initial work site investigation finds sufficient violations.
"Employee misclassification hurts hardworking New Jersey workers and prevents them from receiving the benefits and the pay they worked for and deserve,” said Governor Murphy. “We know that we cannot build a stronger and fairer economy without strong worker protections. Our Administration has made cracking down on misclassification a top priority, and we will continue to root out contractors who exploit and cheat workers.”
The Governor established the task force by Executive Order No. 25 in May 2018 in response to the widespread problem of employee misclassification. In an audit last year of one percent of New Jersey businesses, NJDOL found that 12,315 workers were misclassified, resulting in $462 million in underreported wages and $14 million in lost contributions to unemployment, disability, family leave and workforce programs, according to the report.
“Misclassifying workers as 1099 employees denies them benefits, robs the State Treasury of needed revenue, and makes it harder for law-abiding businesses to compete,” said Labor Commissioner Robert Asaro-Angelo. “I want to thank Governor Murphy for his leadership on this issue, which is critical to his vision for a stronger, fairer economy.”
Misclassification is especially prevalent in construction, janitorial services, home care, transportation, trucking and delivery services, and other labor-intensive, low-wage sectors.
Among the report’s recommendations are expanding interagency cooperation through coordinated enforcement, data sharing, and cooperation with neighboring states.
NJDOL already has in place a Memorandum of Understanding with the U.S. Department of Labor, enabling the two agencies to more easily share information and jointly develop misclassification cases. A similar Memorandum of Understanding among New Jersey, Pennsylvania, and Delaware was signed today. The reciprocal agreement maximizes the neighboring states’ enforcement efforts through referrals, data sharing, and joint investigations.
The task force held public forums in Newark, New Brunswick, and Atlantic City, where it heard from scores of employees, employers, subject-matter experts, and others impacted by misclassification. Their experiences and comments informed the task force’s report.
The following observations and recommendations were made regarding misclassification:
“The DOL should employ a press strategy that raises awareness among employers about their responsibilities and among employees of what misclassification is and how to report it to the DOL. A press strategy should describe the penalties for misclassifying workers and also emphasize that misclassification is an illegal practice that is being carefully monitored and taken seriously in New Jersey. The DOL should also publish a list of companies with unpaid judgments for failure to pay wages, failure to remit payroll taxes, or failure to provide workers’ compensation (by legislation discussed below) to notify the public that the DOL has the tools to ensure all employers comply with the law.
“Data sharing should occur between agencies, subject to any applicable confidentiality requirements. For instance, if evidence of misclassification is found, the Division of Workers' Compensation and the Division of Taxation should be notified so the respective agencies can determine whether any additional investigation is warranted.
“One of the most serious threats misclassified workers face is to their safety. In addition to not being covered by OSHA, employees who are misclassified as independent contractors are often not covered by workers’ compensation. Workers’ Compensation laws are designed to protect all workers, and could be used to bolster enforcement. If an employer makes a false or misleading statement, representation or submission, including misclassification of employees, for the purpose of evading the full payment of workers’ compensation benefits or premiums, the employer could be charged with a fourth degree crime. N.J.S.A. 34:15-57.4 Pursuant to N.J.S.A. 34:15-79, an employer who fails to provide insurance, and who “misrepresents one or more employees as independent contractors” also faces fines of up to $5,000 for the first 10 days of non-compliance and up to $5,000 for every 10-day period thereafter. N.J.S.A. 34:15- 79(d). Each day a worker is misclassified constitutes a separate offense. If an employer knowingly fails to provide workers’ compensation insurance, the Director of the Division of Workers’ Compensation can issue a stop-work order requiring the cessation of all business operations. N.J.S.A. 34:15-79(e).
“In order to perform better investigations, data sharing is essential. Currently, the Division of Taxation is prohibited from sharing tax information due to the confidentiality provisions contained in N.J.S.A. 54:50-8. However, N.J.S.A. 54:50-9 gives several other state entities access to tax records, including but not limited to the Attorney General, Comptroller, State Auditor, Director of the Division of Alcoholic Beverage Control, and the Commissioner of Health. In order to obtain tax information and perform more thorough investigations, it is proposed that the following paragraph be added to N.J.S.A. 54:50-9: (q) The furnishing by the director to the Commissioner of the Department of Labor and Workforce Development or his or her designee any and all information including but not limited to tax information statements, reports, audit files, returns, or reports of any investigation for the purpose of research, assisting in investigations pursuant to state wage, benefit and tax laws. N.J.S.A. 34:11-4.1 et seq. (Wages); N.J.S.A. 34:2-21.1 et seq. (Child Labor); N.J.S.A. 34:11-56.25 et seq. (Prevailing Wage); N.J.S.A. 34:11-56a et seq. (Wage and Hour law); N.J.S.A. 34:15-1 et seq. (Workers' Compensation); N.J.S.A. 43:21-1 et seq. (Unemployment Compensation); N.J.S.A. 43:21-25 et seq. (Temporary Disability law); N.J.S.A. 34:11D1 et seq. (Earned Sick Leave); and N.J.S.A. 43:21-39.1 et seq. (Family Temporary Disability leave).
“In order to deter establishments from engaging with businesses that misclassify or commit other violations, New Jersey should require the DOL to maintain a public list of businesses with unpaid final judgments for failure to pay wages, failure to remit payroll taxes, or failure to provide workers’ compensation insurance. Toward this end, New Jersey should enact a bill modelled after Section 2810.4 of the California Labor Code, which holds retailers accountable for a trucking company’s violations if they are on the published list of carriers that violate California labor laws. Cal Labor Code § 2810.4.
“New Jersey should broaden this legislation to impose joint and several liability on entities that work with other organizations that have unpaid final judgments for failure to pay wages, failure to remit payroll taxes, or failure to provide workers' compensation insurance, and, as mentioned above, include a requirement that the DOL maintain a public list of these offenders. This list could serve two purposes: 1) to deter companies from failing to comply with the law; and 2) to encourage responsible business practices. If businesses work with violators on the list, they could be held jointly and severally liable for unpaid wages, unreimbursed expenses, damages, and penalties, including applicable interest, after the date the business appeared on the list of violators.”
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Jon L. Gelman of Wayne NJ is the author of NJ Workers’ Compensation Law (West-Thomson-Reuters) and co-author of the national treatise, Modern Workers’ Compensation Law (West-Thomson-Reuters). For over 4 decades the Law Offices of Jon L Gelman 1.973.696.7900jon@gelmans.com has been representing injured workers and their families who have suffered occupational accidents and illnesses.
