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A Half Billion Dollar Problem in One State Alone, New Jersey Takes Aim at Misclassification

"With some audits suggesting that misclassification deprives New Jersey of over $500 million in tax revenue every year," the governor of that state is directing a task force to crack down on the problem that's been described as a "cancer" in construction and other industries.

Gov. Phil Murphy, D-New Jersey, signed an executive order last month directing the new task force to examine and evaluate existing misclassification enforcement by executive departments and agencies, develop best practices to increase coordination, and come up with solid recommendations to bolster compliance with the law. Those may include better education of employers, workers, and the general public about the issue. 

The task force is also ordered to review existing law and applicable procedures related to misclassification.

As Construction Citizen readers are well aware, worker misclassification is the illegal practice of designating an employee as a "1099 worker" or an independent contractor to avoid the payment of payroll taxes, unemployment taxes, and workers’ compensation insurance. Of course, there are many legitimate uses of contract labor. The problem arises when companies use the designation as a way to fraudulently submit lower bids for projects, undercutting responsible law-abiding contractors. 

Though Gov. Murphy is a Democrat, Republicans around the country have also seen the need to rein in misclassification. In Texas, for example, former Gov. Rick Perry signed a law back in 2015 targeting the practice on government projects.

The New Jersey task force will be made up of at least 12 members, including three representatives from the New Jersey Department of Labor and Workforce Development, three from the Department of the Treasury, and one representative each from the Department of Law and Public Safety, the Department of Agriculture, the Department of Banking and Insurance, the Department of Human Services, the Department of Transportation, and the Economic Development Authority.

New Jersey has been among places where leaders have been particularly aggressive in tackling the problem. 

Via New Jersey Business

“A state-wide crackdown on worker misclassification; new, unambiguous ways to assess how New Jersey’s workers are categorized; new federal guidelines; aggressive government audits; increased fines for businesses that misclassify, whether intentionally or unintentionally; and more lawsuits filed by independent contractors claiming to be employees.

“Due in part to a New Jersey Supreme Court decision in early 2015 – in Hargrove v. Sleepy’s, which adopted a very stringent test that must be met for workers to be considered independent contractors under the New Jersey Wage and Hour Law – a large number of class action misclassification lawsuits in New Jersey have been filed and will continue to be for the foreseeable future,” states Mark Diana, an attorney with Ogletree, Deakins, Nash, Smoak & Stewart of Morristown. In New Jersey, transportation companies such as Uber and Lyft, for example, especially have been in the crosshairs of much misclassification scrutiny, he adds.”

“An employer who misclassifies an employee as an independent contractor potentially violates a number of State and federal laws, including labor, employment, tax, insurance and occupational safety laws,” Gov. Murphy said, adding that “misclassification further harms law-abiding businesses who follow the rules by enabling non-compliant employers to gain an unfair competitive advantage.”

“This practice harms the State’s economy in many ways,” Gov. Murphy said. 

His executive order can be seen here


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