The difference between an “employee” and an “independent contractor” is critically important when it comes to workplace rights. Employers have a wide range of obligations to employees under federal and New Jersey employment laws. An independent contractor’s rights, on the other hand, usually depend on the terms of their contract with the employer. Some employers may try to classify workers as independent contractors to avoid legal obligations like minimum wage or overtime compensation. This practice, known as employee misclassification, violates both state and federal law. New Jersey has a very employee-friendly rule for determining who is an employee and who is an independent contractor. The New Jersey Department of Labor and Workforce Development (NJDOL) issued a proposed rule in April 2025 that would codify several New Jersey Supreme Court rulings that favored employees.
Independent contractors do not have the same legal protections as employees, particularly regarding compensation. An employer who fails to pay minimum wage or overtime to a nonexempt employee may be liable under laws like the federal Fair Labor Standards Act or the New Jersey Wage and Hour Law (WHL). Misclassifying an employee in connection with a violation of the WHL or other state laws can lead to further liability under a 2019 New Jersey law. An employer can face civil lawsuits and administrative penalties. On the other hand, an independent contractor’s only option is to sue for breach of contract.
New Jersey courts use the “ABC test” to determine whether a worker is an employee or an independent contractor. The test gets its name from the definition of “employee” found in the state’s unemployment insurance law, codified at N.J. Rev. Stat. § 43:21-19(i)(6)(A) through (C). State law essentially presumes that a worker is an employee unless the employer can establish that the worker meets specific criteria.
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