New Jersey Revives the Fight To Reclassify Gig Workers as Employees

For close to a decade, the political left has sought to reclassify independent contractors and gig workers as full-scale employees. Most notably, there was the notorious showdown over the issue in California, after which the push generally seemed to peter out in favor of other regulatory tactics. But New Jersey is now resuscitating that reclassification campaign by enacting a new rule to crack down on gig work.

The broader fight can in some sense be traced to a 2018 decision from the California Supreme Court, which controversially ruled that delivery drivers in the Golden State had been misclassified as independent contractors. Instead, the court said, they should be seen as full-scale employees. As the basis of its holding, the court relied on a strict version of what’s known as the ABC Test for worker classification, which is a legal standard that makes it highly difficult to qualify as an independent contractor under the law.

A year later, California passed its notorious A.B. 5 bill, which extended the decision to other industries. The ABC Test has multiple prongs, but the most significant one is usually prong “B,” which requires that a worker must perform work “outside the company’s usual course of business” in order to maintain independent contracting status. Under the strictest versions of the test, this standard is impossible to meet for most companies, while weaker versions of the test provide more leeway.

In the aftermath of A.B. 5, it was widely expected that strict ABC tests would spread to other states across the country. But only California and Massachusetts currently have the most stringent version. (Numerous states have watered-down iterations, many of which preexisted A.B. 5’s passage.) For its part, California has since exempted over 100 industries from A.B. 5, while gig companies successfully passed a ballot initiative to carve out their own exemption from the law in 2020. Meanwhile, evidence has trickled in that California saw drops in overall employment and self-employment in the wake of A.B. 5, further cementing the law’s status as a policy failure.

In the face of this reality, progressives turned to other lines of attack against the gig work model in recent years. Large cities like Seattle and New York have passed high minimum wage mandates for gig workers, while NYC passed a law stipulating that no gig worker could be deactivated from a platform without a gig company first showing “just cause” for the removal. Blue states like Massachusetts, California, and Illinois have also passed laws allowing gig workers to unionize.

All of these laws are designed to apply employee-style rules to gig workers, even if broad reclassification had failed to take off legislatively across the country. Yet recent rule making from the New Jersey Department of Labor and Workforce Development shows that stringent ABC tests are unfortunately far from dead.

The New Jersey development—which has been in the works since Gov. Phil Murphy was in office, but was finalized under current Gov. Mikie Sherrill’s reign—is the capstone of a long campaign by the Garden State against gig companies like Uber and Lyft. New Jersey sued both companies in recent years for misclassifying workers; both lawsuits resulted in settlements, despite the companies maintaining that their drivers were correctly classified.

The New Jersey Department of Labor and Workforce Development then turned to the rule making process to formalize the state’s view into written regulations. The department claims that it is merely interpreting and codifying the state’s longstanding ABC Test—which, it points out, was part of New Jersey law 80 years before A.B. 5 even existed. It also argues that it is endorsing past New Jersey Supreme Court decisions that interpreted the state’s ABC test, while eschewing the most stringent wordings of prong B.

But the state’s argument is too clever by half. First, the department’s rule making appears to be in tension with past precedent in the state rather than aligning with it. Second, while the new rule making is technically just a continuation of New Jersey’s already-existing ABC test, it is clearly an effort to import a more stringent version of the test into the Garden State.

In the initial proposed rule making, the department laid out specific examples of contracting relationships that would likely fail the critical prong B of the ABC test. One of these examples included a transportation network company, meaning that gig workers on such platforms would be reclassified as employees.

After commenters argued that these highly specific examples—which were included as part of the regulatory text—were a form of prejudging legal outcomes involving gig work and other contracting arrangements, the department responded by simply deleting the examples from the final rule. While this may ward off legal challenges down the road, the government had already let the mask slip: Gig workers will almost certainly be deemed full-scale employees under the new rule.

New Jersey’s approach points toward a new path for worker reclassification efforts in left-leaning locales. Rather than working directly through the legislative process, states with less stringent ABC tests on the books can reclassify gig workers under the guise of “interpreting” already-existing law.

A.B. 5 showed the country the likely result: job declines and scores of industries lobbying for exemptions. But this reclassification campaign is nonetheless showing renewed signs of life.