New Jersey Enacts Three Laws with Enhanced Penalties for Employer Misclassification

On July 8, 2021, Governor Murphy signed into law three bills that amend the Worker Misclassification Package signed into law in January 2020 and intensify penalties against employers that misclassify workers. As employment practitioners across the state will recall, the Misclassification Package signed into law in January 2020 consists of a number of laws that grant the Commissioner of Labor and Workforce Development (“Commissioner”) the power to assess penalties against any employer that misclassifies its employees and to issue stop-work orders at the location where any state wage, benefit, or employment tax law violation is found. The laws included in the previously enacted Misclassification Package also allow the New Jersey Department of Labor (NJDOL) to post on its website a list of employers who have been found to misclassify their workers and to create joint liability for employers and staffing agencies for violations of state wage and hour laws. For a more detailed look at the Misclassification Package, see here.

The first of the three new bills, S3920, which became effective immediately, intensifies the penalties against employers that misclassify workers, by expanding the Commissioner’s power to issue stop-work orders to employers that are found to be in violation of employee classification laws. The original law allowed the Commissioner to issue a stop-work order only at the specific place of business at which a violation exists, but the new law allows the Commissioner to issue stop-work orders across one or more worksites, or across all of the employer’s worksites and places of business. S3920 also provides that employees affected by a stop-work order issued pursuant to the law are entitled to pay from the employer for the first ten days of work lost because of the order. Employers that violate a stop-work order could face a fine of up to $5,000 per day that the employer is not in compliance with the order.

The second bill, S3921, also became effective immediately and created the Office of Strategic Enforcement and Compliance, which will investigate claims of employee misclassification and coordinate enforcement efforts within the NJDOL and across other state agencies. Under the new law, among other things, employers must have no outstanding liability for unpaid contributions to the Unemployment Compensation Fund or the State Disability Benefits Fund to be considered in substantial good standing with the state, and those businesses that do have outstanding liability will be precluded from receiving business assistance from the NJDOL. The NJDOL will also report to requesting state agencies the status of businesses that are not in substantial good standing.

Finally, the third bill, S3922, which will take effect on January 1, 2022, provides that businesses that misclassify workers “for the purpose of evading payment of insurance premiums” are guilty of insurance fraud. An employer that is found to have purposely or knowingly misclassified its employees is subject to fines starting at $5,000 for a first violation, $10,000 for a second violation, and $15,000 for each subsequent violation pursuant to the New Jersey Insurance Fraud Prevention Act. In addition, an adverse finding under the law will trigger an investigation by the New Jersey Department of Banking and Insurance.

New Jersey employers should pay close attention to the provisions of these newly-enacted bills, as they have the potential to have statewide implications on business operations and government assistance if compliance is not a top priority. If you have any questions regarding this blog, please feel free to contact an attorney in the Gibbons Employment & Labor Law Group.

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