New Jersey businesses that use freelancers, consultants, gig workers, or other independent contractors should pay close attention to recently adopted regulations from the New Jersey Department of Labor and Workforce Development (NJDOL). On May 5, 2026, the NJDOL adopted N.J.A.C. 12:11, a comprehensive regulatory framework codifying how the state applies its strict “ABC Test” to worker classification. The new rules carry an operative date of October 1, 2026.
Although New Jersey has applied the ABC Test for decades through statutes and court decisions, N.J.A.C. 12:11 represents the first comprehensive regulatory framework explaining how the NJDOL interprets and enforces the test. The regulations apply uniformly across the New Jersey Unemployment Compensation Law, the Wage and Hour Law, the Wage Payment Law, the Earned Sick Leave Law, and the Temporary Disability Benefits Law.
For startups and businesses that rely heavily on 1099 workers, these regulations significantly increase the importance of properly structuring independent contractor relationships. In this blog, our New Jersey business attorneys break down the rule.
What Is the New Jersey ABC Test?
Under N.J.S.A. 43:21-19(i)(6)(A), (B), and (C), workers performing services for remuneration are presumed to be employees unless the hiring business can prove all three parts of the ABC Test.
To classify a worker as an independent contractor, a business must establish:
Prong A: Freedom From Control
The worker must be free from the company’s control or direction, both under the written agreement and in actual practice.
This means the company should avoid controlling how the contractor performs the work, dictating schedules, supervising day-to-day activities, or otherwise treating the contractor like a traditional employee. The new regulations clarify that actions taken solely to comply with legal or regulatory obligations generally will not automatically count as “control” for purposes of the ABC Test.
Prong B: Outside the Usual Course or Place of Business
The services performed must either:
(a) be outside the company’s usual course of business; or
(b) be performed outside all places of business of the company.
This is often the most difficult prong for businesses to satisfy. For example, if a marketing agency hires a freelance graphic designer, the state is likely to argue the designer is performing work within the company’s usual course of business. Similarly, if contractors regularly work at the company’s office or jobsite, the NJDOL will typically view that as evidence against independent contractor status.
The new regulations were drafted in direct response to the New Jersey Supreme Court’s invitation in East Bay Drywall, LLC v. Department of Labor and Workforce Development, 251 N.J. 477 (2022), in which the Court asked the NJDOL to clarify what constitutes the “usual course of business” and what counts as a company’s “places of business,” particularly in light of the prevalence of remote work. Businesses should not assume that a contractor working from home is automatically outside the company’s place of business. Under the regulations, a company’s “places of business” may extend beyond traditional office locations in some circumstances.
Prong C: Independently Established Business
The worker must be customarily engaged in an independently established trade, occupation, profession, or business.
Relevant factors may include whether the contractor:
- advertises services to the public;
- works for multiple clients;
- maintains a separate business entity;
- carries business insurance;
- holds independent business licenses;
- bears entrepreneurial risk; or
- can continue operating independently if the relationship with the hiring company ends.
A worker who depends almost entirely on one company for income may have difficulty satisfying this prong. This standard reflects the New Jersey Supreme Court’s analysis in Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991), which the NJDOL cites as a foundational interpretation of Prong C.
Why a Written Contract Alone Is Not Enough
One of the most important practical takeaways from N.J.A.C. 12:11 is that the existence of a written contract labeling the worker as an independent contractor will not be dispositive. This is particularly true where the hiring business is the “unilateral drafter” of the agreement and the material terms are not negotiable.
In other words, businesses that rely on a signed independent contractor agreement as their primary line of defense should reassess that strategy. The NJDOL and the courts will look beyond the contract to the actual working relationship.
Why the New Regulations Matter
The NJDOL has aggressively pursued worker misclassification enforcement for years. N.J.A.C. 12:11 is designed to standardize enforcement and provide additional interpretive guidance to investigators and courts.
Businesses that improperly classify workers as independent contractors may face substantial liability, including:
- unpaid overtime wages;
- unpaid payroll taxes;
- unemployment and disability contributions;
- penalties and interest;
- wage payment claims;
- earned sick leave exposure;
- employee benefit exposure; and
- potential class action litigation.
The financial consequences can be severe. New Jersey has previously pursued high-profile misclassification actions against gig economy companies and other businesses using large contractor workforces, including a 2022 settlement with Uber for approximately $100 million in unpaid unemployment and disability contributions.
Industries Likely to Face Increased Scrutiny
The regulations are particularly important for businesses operating in industries that commonly use 1099 labor, including:
- construction;
- trucking and logistics;
- financial services and insurance;
- marketing and creative services;
- real estate;
- IT and software development;
- consulting;
- home services;
- transportation and delivery services; and
- gig economy and app-based platforms.
Companies in these industries should carefully review existing contractor relationships before the October 1, 2026 operative date.
Steps Businesses Should Take Now
Businesses utilizing independent contractors in New Jersey should consider taking proactive compliance measures, including:
Review existing independent contractor agreements. Written agreements should accurately reflect the actual working relationship and reinforce contractor independence. Because the regulations expressly state that a unilaterally drafted contract is not dispositive, businesses should also be prepared to demonstrate that contract terms were negotiated rather than imposed.
Audit operational practices. Even a well-drafted agreement may not protect a company if day-to-day operations resemble an employment relationship.
Evaluate Prong B carefully. Many businesses underestimate the difficulty of satisfying Prong B under New Jersey law, particularly when contractors perform work that overlaps with the company’s core business or work remotely on behalf of the company.
Confirm contractors operate independent businesses. Companies should verify whether contractors maintain separate businesses, work for other clients, and hold themselves out independently to the public.
Consult experienced counsel. Because the ABC Test is highly fact-sensitive, legal review is often critical before structuring or continuing independent contractor relationships.
Final Thoughts
New Jersey continues to maintain one of the strictest worker classification standards in the country. While N.J.A.C. 12:11 does not completely rewrite existing law, the regulations provide additional clarity regarding how the state intends to enforce the ABC Test moving forward and reflect a continued shift toward broader employee classification.
Businesses that rely on freelancers, consultants, or other 1099 workers should use the months leading up to the October 1, 2026 operative date to evaluate their independent contractor relationships and reduce potential misclassification risk.
If your business uses independent contractors in New Jersey, the business attorneys at Brown & Blaier, PC can help review your contractor relationships, agreements, and compliance practices to minimize exposure under New Jersey’s evolving worker classification laws.