Worse than California's AB5

Attorneys are weighing in on New Jersey's proposed independent-contractor rule. One says it will "lead to the elimination of all ICs" in the state.

This photograph pretty much sums up how I feel after reading the analysis that some attorneys have now posted about New Jersey’s proposed independent-contractor rule:

Photo by Yogendra Singh on Unsplash

It’s as if the current leadership in Trenton wants to drive all of the most entrepreneurial minds out of the state.

They tried, and failed, to do just that back in 2019-20 with legislation that mirrored California’s disastrous freelance-busting ABC Test law. Independent contractors from all across New Jersey cried foul. Our elected officials ultimately decided this policy was a bad idea for the Garden State.

Trenton bureaucrats are now moving to impose this ABC Test interpretation on us all anyway, through rule-making, in their final months of having power before this fall’s election.

This independent-contractor rule-making is a brazen act of knowingly and remorselessly attacking 1.7 million New Jerseyans’ livelihoods.

We only had anecdotal evidence back in 2019-20 to make our case that this kind of ABC Test rule-making is destructive. Now, we have scads of proof. The California law, known as Assembly Bill 5, has been a horror show for independent contractors ever since it went into effect in 2020. It tanked not only self-employment, but also overall employment. The damage has been so bad in California that there’s now a lawmaker calling for a U.S. Justice Department investigation, along with a warning from members of the California Advisory Committee to the U.S. Commission on Civil Rights that other states should avoid adopting this ABC Test to determine independent-contractor status.

New Jersey’s Department of Labor, apparently, looked at all of that and thought: Let’s see how we can hurt hardworking people even more.

According to two law firms that have posted the first public analysis of the 33-page proposed independent-contractor rule for the Garden State, what’s happening here is poised to be even worse than the turmoil we’ve all witnessed in California.

The advocacy group New Jobs America says the same thing. President Mike Hruby posted a thread on X yesterday that starts with this:

He wrote that what New Jersey’s Labor Department is trying to impose should be called the “ugliest ABC test" because it would make it “nearly impossible to work independently.”

There appears to be no rational basis for policy-makers to do this, other than a desire to destroy the income and careers of happily self-employed people.

What the Lawyers Say

The law firm Troutman Pepper Locke wrote, in its analysis headline: “Garden State May Soon Become Even Less Hospitable to Independent Contractors ‎Than the Golden State.”

Partner Richard Reibstein then explained why, starting with this bit, about New Jersey’s ABC Test interpretation:

“The proposed regulation pertaining to Prong A departs in a dramatic manner from virtually every other test for IC status under federal law and the laws in every state — and unless clarified in the final version of the regulation, would not merely tilt the balance in favor of employee status and against legitimate ICs but rather lead to the elimination of all ICs in New Jersey.”

Elimination of all ICs in New Jersey.

When it comes to Prong B of the ABC Test in the New Jersey proposed rule, he writes:

“This view of the second part of the 'B prong’ almost entirely eviscerates any chance for most ICs and companies using their services from establishing the workers’ IC status.”

Eviscerates any chance.

And then there’s this gem from Reibstein, about the fact that California’s ABC Test law was a disaster even after dozens of professions were ultimately exempted from it:

“Unlike California’s AB5 and successor bills enacted in that state with 65 or more exemptions from its strict ABC test, the proposed regulation has none.”

In other words, all the professions in California that didn’t get totally nailed by that state’s ABC Test law—including doctors, dentists, lawyers, insurance agents and accountants—are in the crosshairs of losing their incomes and careers here in New Jersey, because no professions are being exempted.

Think about how aggressive that kind of bureaucratic behavior is. It’s the equivalent of New Jersey pencil-pushers throwing a bomb into a country club with an adjacent yacht marina. People in these professions make big bucks and have first-rate political connections. They’re not going to accept this challenge to their freedom to earn a living.

But I digress.

Back to the attorneys.

The legal eagle at Troutman Pepper Locke is not alone in suggesting that it’s going to take a miracle for most independent contractors to pass this interpretation of the ABC Test and remain in business in New Jersey.

Fox Rothschild, which has 30 offices around the country, wrote this about roles that are likely to now be classified as employees:

“These examples include: a transportation network company (e.g., Uber or Lyft) engaging a driver to transport customers, a drywall installation company engaging a drywall installer and a country club engaging a golf caddie to work on its golf course.”

Ah, the golf caddies. Back in 2021, New Jersey lawmakers tried to pass an entire bill just to protect country-club owners from facing misclassification fines over independent-contractor golf caddies.

As reported in the New Jersey press back then, I went down to Trenton and testified to those lawmakers’ faces that they should be protecting all legitimate independent contractors, “not just the ones who hold your golf clubs.”

That ridiculous bill died, too.

Really good times.

One news report last week about New Jersey’s proposed independent-contractor rule stated that truckers, too, are not likely to be considered independent contractors under the proposed rules.

Hello, supply chain: As we all heard during testimony against this kind of policy-making back in 2019 at the Statehouse in Trenton, owner-operator truckers comprise 77% of the driver workforce at the Port of NY&NJ.

Seventy-seven percent.

And, you know, it’s not like we already have a supply-chain situation brewing because of tariffs or anything like that. Now would be a super smart time to add a whole other layer of supply-chain challenges at one of the biggest ports in the country.

But I digress again.

Back to the attorneys.

Fox Rothschild also wrote that New Jersey’s interpretation of the ABC Test can target independent contractors working in all kinds of locations:

“The DOL proposed further provide examples of what will be considered a location where an ‘integral part’ of an employer’s business is conducted, and it could include a private residence where installation work or remote work of any kind is occurring, or a truck, airplane or vehicle for transportation companies.

“The examples given in the proposed regulation far exceed what employers would generally consider their place of business.”

Far exceed.

The proposed rule also states outright that creating a corporation is not good enough to satisfy Prong C of this ABC Test interpretation. In the words of the New Jersey Department of Labor itself:

“Proof of business registration, including the establishment of a sole proprietorship, a limited liability company, or a corporation, by the individual performing a service for the putative employer, is not alone sufficient to meet Prong C.”

Owning your own corporation is not sufficient.

What would be sufficient for the New Jersey Department of Labor?

Maybe whoever the new Pope is could come out here from Vatican City and anoint us.

The 60-day public comment period for New Jersey’s proposed independent-contractor rule just opened. Comments will be accepted until July 4, 2025 (when the government is actually closed for the July Fourth holiday) via David Fish, executive director legal and regulatory services Department of Labor and Workforce Development, PO Box 110, 13th Floor Trenton, New Jersey 08625-0110; fax: (609) 292-8246; email: david.fish@dol.nj.gov.

Based on what I’m hearing everywhere from the New Jersey Chamber of Commerce to well-funded lobbyist and advocacy groups in Washington, D.C., the state is about to get flooded with public comments that strongly oppose this ridiculously overreaching rule-making.

Obviously, a bunch of us from the grassroots movement Fight For Freelancers, which I co-founded back in 2019-20, will have more than a few things to say about this, too.

So will candidates out on the campaign trail right now ahead of November’s statewide elections here in New Jersey. Already, Republican gubernatorial front-runner Jack Ciattarelli has promised to undo this NJDOL rule if he is elected governor this fall:

So, yes, we all have to get to work on writing and submitting those public comments.

But there’s one more thing to discuss before we put pen to paper. Let me tell you about my absolute favorite line in this 33-page proposed rule.

It gives up the whole sick game the freelance-busting brigade is playing.

They Said the Quiet Part Out Loud

We have been told, for years now, all the way back to Governor Murphy’s misclassification task force report in 2019, that the problem our government is trying to solve is misclassification.

Again and again, at the state and federal levels, with all of the reclassification legislation and regulations, we have been told the goal is to stop letting companies harm rightful employees by misclassifying them as independent contractors.

We must stop misclassification!

That’s been the sales pitch all along. But the reality has always been that for this kind of widespread reclassification to actually happen—for all these independent contractors to really become employees—then all the companies currently doing business with independent contractors would have to create new jobs for them.

New Jersey companies cannot, and will not, create traditional jobs for 1.7 million independent contractors. Throughout the past decade, the entire U.S. economy has typically added 1.9 million jobs per year.

California companies sure didn’t create jobs for all the out-of-luck independent contractors after the ABC Test law went into effect there in 2020, according to research that was released in 2024. And it won’t happen in New Jersey, either—according to the New Jersey Department of Labor itself.

Here’s the “jobs impact” section—in its entirety—from the New Jersey Labor Department’s proposed rule:

That 16-word sentence is an admission that what independent contractors have been saying all these years is true. New Jersey officials are acknowledging, point-blank, that there will be no new jobs created for all the independent contractors who are about to have their business relationships, incomes and careers wiped out.

With those 16 words, New Jersey’s Labor Department is also saying this new rule will not cost any employees their current jobs. But we know, from the 2024 economic analysis about what happened in California, that this claim isn’t true.

Economists who looked at what happened in California, much to their surprise, found not only a decrease in self-employment after California’s ABC Test law went into effect, but also a 4.4% decrease in overall employment for affected occupations.

That study’s lead author, Liya Palagashvili of the Mercatus Center, has written about why:

“One possible explanation is that businesses that had workers on payroll and also relied heavily on independent contractors shut down because of the ABC test (therefore causing W-2 employment to also fall). This is supported by anecdotal evidence coming out of California where employers started closing down their offices that had both W-2 employees and contractors (e.g., some of these stories).

“Therefore, businesses that had both W-2 employees and independent contractors moved to other states that don’t have an ABC test. Over time, there is a growth in W-2 employment in non-ABC test states relative to ABC test states.”

Put another way, here in New Jersey, this proposed independent-contractor rule is poised to be not just an assault on independent contractors’ freedom to be our own bosses, but also an economic killer for the state as a whole.

Unless you believe New Jersey Labor Commissioner Robert Asaro-Angelo. Here’s how he is pitching this plan to the public:

“The work being done in New Jersey to combat worker misclassification is a testament to our state’s commitment to justice and fairness in the workplace. This rule proposal is a critical step in providing clear, reliable guidance to employers to help them comply with the law and prevent the illegal misclassification of employees. Not only would these new rules protect workers’ rights, but they would also ensure that bona fide independent contractors understand what makes them independent contractors, rather than employees, so that they can continue to operate with autonomy.”

Ensure that we understand?

We understand what’s happening quite well, thankyouverymuch. The State of New Jersey is not trying to protect us. It’s attacking us.

Every one of us has always had the freedom to hang out a shingle and be our own boss, ever since the day the United States was founded.

The State of New Jersey is now trying to take that freedom away.