In today’s regulatory environment, employers are walking a fine line when it comes to classifying workers. Step too far in one direction, and you risk misclassifying an employee as a contractor. Step too far the other way, and you may burden your business with obligations that don’t apply. Either way, the fall can be costly.
The Shifting Federal Balance
The U.S. Department of Labor has redrawn this line multiple times in recent years:
- Trump Administration (First Term): A narrow rule emphasizing control over the work and the worker’s profit or loss potential.
- Biden Administration: Expanded to the Economic Reality Test, applying six factors, including permanence of the relationship and whether the work is integral to the business.
- Trump Administration (Second Term): Suspended the Biden rule and is now looking to finalize its original, more limited standard.
These shifts leave employers balancing on unstable ground — the line keeps moving beneath their feet.
New Jersey’s Stricter Line
Even if a worker qualifies as a contractor under federal law, New Jersey’s ABC Test creates a much higher standard. Here, the presumption is that a worker is an employee, unless the employer proves:
- The worker is free from control;
- The work is outside the usual course of business or offsite; and
- The worker operates an independent business of their own.
This was underscored in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), where delivery drivers were deemed employees under the ABC Test despite contracts labeling them as independent contractors.
Why It Matters
Misclassification isn’t just a technical slip — it’s a costly fall. Employers can face:
- Back wages for unpaid overtime and minimum wage violations
- Tax penalties from the IRS and state agencies
- Unemployment and workers’ comp claims
- Class-action lawsuits from groups of misclassified workers
“Businesses often don’t realize just how narrow the line is until they’ve crossed it. Classification isn’t about labels — it’s about legal tests. Our job is to make sure employers stay balanced.”
— Stephen E. Trimboli, Senior Partner, Chilla Business Counsel
To stay balanced and protect your business, employers should take a proactive approach to worker classification. This means understanding both federal and state rules, auditing roles against standards like the Economic Reality test and New Jersey’s ABC Test, and documenting independence clearly in contracts. Managers should be trained on the limits of directing contractors, while legal counsel should be sought early to prevent costly mistakes. Because rules shift, classifications must be reviewed regularly and systems should allow flexibility to adapt. And when disputes arise, resolving them quickly through mediation or negotiation helps avoid escalation and expensive litigation.
The Takeaway
Classifying workers is like walking a tightrope: every step must be deliberate. Federal rules may sway with political winds, but New Jersey’s ABC Test remains firm — and unforgiving.
One misstep could push your business into a costly dispute.
At Chilla Business Counsel, we help businesses keep their footing — with audits, compliance strategies, and defense when disputes arise.
Don’t walk this line alone. Contact us today to schedule a consultation and keep your business balanced. [email protected] 973.660.1095
Protect your people. Protect your company. It starts with the policy.
Let Chilla make sure your foundation is built to last.
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