The New Jersey Department of Labor and Workforce Development (“NJDOL”) codified in regulation how the “ABC test” applies when determining whether a worker is an employee or an independent contractor under laws the Department enforces. The NJDOL frames N.J.A.C. 12:11 as a restatement—emphasizing that it is not adopting or codifying a new ABC test and that the new rules simply memorialize the NJDOL’s interpretation, consistent with statute, binding case law, and longstanding final administrative determinations (“FADs”). These new rules will become operative on October 1, 2026.
What is the ABC Test?
The ABC test is the longstanding statutory framework that distinguishes between employees and independent contractors for purposes of New Jersey’s Unemployment Compensation Law (“UCL”). Under this rule, a worker providing services for compensation is presumed to be an employee unless the employer can satisfy all three prongs of the ABC test. These prongs are:
- A) The worker has been and will continue to be free from control or direction over the performance of services, both under the worker’s contract of service and in fact;
- B) The work performed is either outside the usual course of the business for which the work is being performed, or the work is performed outside of all the places of business of the enterprise; and
- C) The worker is customarily engaged in an independently established trade, occupation, profession, or business.
In 2015, the New Jersey Supreme Court held in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), that the UCL’s ABC test also governs whether an individual is an independent contractor under both the New Jersey Wage and Hour Law (“WHL”) and the New Jersey Wage Payment Law (“WPL”). In 2022, the New Jersey Supreme Court in East Bay Drywall, LLC v. Department of Labor and Workforce Development, 251 N.J. 477 (2022), invited the NJDOL to promulgate rules providing guidance on application of the ABC test.
The NJDOL accepted that invitation, enacting N.J.A.C. 12:11. The regulations codify how the test applies across six New Jersey statutes—the UCL, the Temporary Disability Benefits Law, the Wage Payment Law, the Wage and Hour Law, the Earned Sick Leave Law and the Call Center Jobs Act.
The NJDOL’s adoption of N.J.A.C. 12:11 reflects an effort to synthesize and memorialize decades of New Jersey case law and FADS interpreting the statutory ABC test’s three elements and the factors relevant to each, providing guidance that the Department asserts is consistent with statute and binding precedent.
New Language Regarding the 3 Prongs
The newly adopted regulations provide further detail for each of the three prongs.
With respect to prong A, the regulations set forth nine factors that should be considered in evaluating whether an individual has been and will continue to be free from control or direction; however, they also specifically state that this list is not “exhaustive and additional factors may be considered.” The nine factors include:
- Whether the individual is required to work any set hours or jobs,
- Whether the putative employer has the right to control the details and means by which the services are performed by the individual,
- Whether the services must be rendered by the individual personally,
- Whether the putative employer negotiates for and acquires the services performed by the individual,
- Whether the individual’s rate of pay is fixed by the putative employer,
- Whether the individual bears any risk of loss for services performed,
- Whether the individual is required to be on call, on standby, or otherwise available to perform services at set times determined by the putative employer, even if the individual does not actually perform services at such times,
- Whether the putative employer limits the individual’s performance of services for other parties such as by limiting the individual’s geographic area or potential clientele, and
- Whether the putative employer provides training to the individual.
With respect to prong B, the regulations provide that the putative employer’s usual course of business may include activities that the putative employer regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services. The regulations also clarify that an individual’s personal residence, where they perform remote work, shall not be considered among the putative employer’s places of business.
With respect to prong C, the regulations again provide a non-exhaustive list of factors to be considered, including:
- The duration, strength, and viability of the individual’s business (independent of the putative employer),
- The number of customers of the individual’s business and the volume of business from each respective customer,
- The amount of remuneration the individual receives from the putative employer compared to the amount of remuneration the individual receives from others in the same industry,
- The number of employees of the individual’s business,
- The extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources,
- Whether the individual sets their own rate of pay, and
- Whether the individual advertises, maintains a visible business location, and is available to work in the relevant market.
The rule goes on to state that having multiple employers is not sufficient. Neither is licensure, business registration, or carrying insurance alone. The worker must have a genuine, independent business that existed apart from the hiring relationship and would survive its termination.
Notwithstanding the various factors set forth in the text, the rule makes clear that the entire relationship between the individual and the putative employer will be relevant to evaluating each prong of the ABC test.
The rules also confirm that issuance of a Form 1099 does not create independent contractor status, and neither does a contract that labels someone an independent contractor.
Supporters contend this rulemaking merely consolidates and clarifies existing caselaw and NJDOL policy by codifying relevant principles from published court opinions and Commissioner FADs without creating a new test. But critics respond that transcribing case-by-case rulings into regulation risks making it more difficult to argue that particular, context‑bound findings are inapplicable in future scenarios.
Next Steps
The rules will become operative on October 1, 2026, and the NJDOL may take this opportunity to further focus its enforcement operations on misclassification violations. Accordingly, employers should ensure their documentation and compliance programs align with these interpretations before the operative date and may contact a Saul Ewing attorney with any questions regarding the ABC test or the NJDOL’s regulations.
