New Jersey's ABC Test Regulation Takes Effect Nationwide
New Jersey's independent contractor regulation, codifying the strict ABC test, took effect on October 1, 2026.
The New Jersey independent contractor regulation took effect on Thursday, October 1, 2026. The rule establishes a legal default for independent contractor status in New Jersey, creating significant uncertainty for businesses and workers across multiple industries. Its implementation has drawn comparisons to California's AB5 law, but with a broader, more stringent application. The regulation, formally adopted by the New Jersey Department of Labor and Workforce Development as N.J.A.C. 12:11, has nationwide implications for any company operating in the state with workers performing services from home offices or other locations within New Jersey.
ABC test framework requires employer to prove all three prongs
The regulation codifies the ABC test, which presumes a worker is an employee unless the employer satisfies all three prongs. The burden of proof rests entirely on the employer. Failure to meet any single prong results in the worker being classified as an employee.
Prong A requires the worker to be free from control or direction over the performance of services. The rule includes nine non-exhaustive factors for evaluating control, such as set hours, control over work details, personal performance requirements, rate of pay determination, risk of loss, on-call requirements, limitations on working for others, and training. A safe harbor exists for control exercised solely for regulatory and legal compliance reasons, a change from the initial proposal.
Prong B requires the services to be performed outside the usual course of the employer’s business or outside all of the employer’s places of business. 'Usual course of business' is defined as activities regularly engaged in to generate revenue or develop, produce, sell, market, or provide goods or services. 'Places of business' is defined broadly to include physical plants and any location where integral business activities are conducted, though a remote worker’s home is explicitly excluded.
Prong C requires the worker to be customarily engaged in an independently established trade, occupation, profession, or business. This prong evaluates seven factors: the duration and viability of the independent business, the number of customers, the proportion of income from the employer, the number of the worker’s own employees, investment in tools and equipment, the ability to set one's own rate of pay, and advertising or maintaining a visible business location. Formalities like independent contractor agreements or receiving a 1099 form do not by themselves satisfy Prong C; the state will focus on the substance of the relationship.
Business groups criticize regulation as overly burdensome and unworkable
Industry associations have strongly criticized the regulation's interpretation and implementation. The New Jersey Chamber of Commerce, led by Tom Bracken, criticized the rule and called for a delay in its implementation. Michele Siekerka, President and CEO of the New Jersey Business & Industry Association, argued that the regulation imposes an overly broad interpretation of the ABC framework, calling it a virtually impossible standard to meet. Business associations, including trucking-related groups, have also voiced opposition.
Attorney Richard Reibstein of Littler Mendelson summarized the opponents' view. While the final regulation was modified from last year's initial proposal to be less punitive, critics say it still uses a business-unfriendly ABC test interpreted in an unhelpful manner.
Regulation applies universally without industry exemptions
Unlike California's AB5 law, which included specific industry carve-outs, New Jersey's rule applies to all industries without exemptions. This universal application amplifies its impact across the economy. The regulation is part of New Jersey’s broader effort to address worker misclassification, following 2021 legislation that expanded enforcement tools, allowed for increased penalties and stop-work orders, and enhanced interagency coordination through a dedicated task force.
Employers found to have misclassified workers may face assessments for unpaid contributions to state benefit funds, plus interest and penalties. In response, attorneys from Duane Morris LLP advise businesses to take proactive steps. Employers should conduct a comprehensive audit of existing independent contractor relationships before the October 1, 2026 effective date. They should review and revise independent contractor agreements to address each prong of the ABC test, carefully avoiding provisions that indicate excessive control. Employers in regulated industries should document the legal or regulatory basis for any supervisory requirements to utilize the Prong A safe harbor. They should also evaluate work locations to determine if they could be deemed places of business under the rule's broad definition and monitor legislative developments regarding status confirmation for certain licensed professionals.
