New Jersey Adopts Final Independent Contractor Regulations

The New Jersey Department of Labor and Workforce Development (NJDOL) adopted on May 5, 2026 final regulations codifying its interpretation of the “ABC Test,” which governs whether workers are classified as employees or independent contractors under multiple New Jersey statutes. The new regulations are scheduled to take effect on October 1, 2026.

The regulations originated under the Murphy administration, which in May 2025 published a proposed rule addressing the application of the ABC Test under state statutes such as the Unemployment Compensation Law, Wage and Hour Law, Wage Payment Law, and Earned Sick Leave Law. That proposal drew more than 9,500 comments, mostly in opposition, with individuals and groups arguing that the proposed rule represented a significant departure from existing law that threatened to upend independent contractor relationships across a range of industries.

When Governor Mikie Sherrill took office in January 2026, she imposed a 90-day regulatory freeze that paused the rulemaking. Her administration has now decided to move forward with the rule, with revisions. The final regulations scale back several of the most criticized provisions, but many core concerns remain for companies and individuals in New Jersey that rely upon independent contractor business models.

THE PROPOSED RULE AND COMMENTERS’ CONCERNS

New Jersey has utilized the ABC Test in the unemployment context since 1936. The New Jersey Supreme Court expanded the application of that test to wage claims in 2015. Under the ABC Test, workers are presumed to be employees unless the engaging party can prove that (A) the worker is free from control or direction over the performance of services, (B) the service performed by the worker is either outside the usual course of the business or performed outside all the putative employer’s places of business, and (C) the worker is customarily engaged in an independently established trade or business.

When the NJDOL released its proposed rule, commenters identified several areas where it appeared to go beyond existing law. For example, under Prong A, the proposal stated that control exercised to ensure compliance with laws or regulations would be treated as employer-type control and given “equal weight” to any other form of control. That deviated from numerous cases holding that regulatorily required control does not constitute employer-type control.

Under Prong B, the proposal expanded the concept of an employer’s “usual course of business” to encompass virtually any revenue-generating activity and broadened “places of business” to include any location where the worker conducts business on behalf of the company—accompanied by detailed examples that appeared to target specific industries.

Under Prong C, the proposal specified that professional licensure, working for multiple employers, and similar traditional hallmarks of independence would not, alone, be sufficient to satisfy that prong. The proposal also diminished the probative weight of the parties’ contractual agreement and contained no industry-specific exemptions.

KEY CHANGES IN THE FINAL REGULATIONS

Among the most significant changes in the final regulations is the express acknowledgment that actions taken by a putative employer “solely to comply with federal, state, or local laws or regulations shall not, standing alone, be considered evidence of control or direction under Prong A.” In making that change, the NJDOL acknowledged the concerns expressed by several industry groups and sought to more closely align Prong A with those cases, recognizing that implementing policies or practices to satisfy compliance obligations is not employer-type control.

That said, the dual qualifiers (“solely” and “standing alone”) signal that where regulatory compliance activities are accompanied by other indicia of control, they may still be considered employer-type control. Employers in regulated industries should remain attentive to how they structure compliance programs to tie policies to laws and regulations and to avoid overreaching policies and practices.

Under Prong B, the NJDOL eliminated the industry-specific examples that had illustrated scenarios where services would “typically” or “likely” be deemed inside or outside the employer’s usual course of business or places of business. Commenters had criticized those examples as being outcome-determinative and for targeting industries like trucking, delivery, and transportation network companies. The NJDOL also removed the introductory language that characterized a company’s “places of business” as including any location where the worker’s services are “an essential component of, rather than ancillary to,” the employer’s business. The NJDOL also retained a provision stating that a worker’s personal residence where they perform remote work will not be treated as among the putative employer’s places of business.

Other notable changes include the removal of the Prong A sub-factor that would have treated a worker’s required use of a digital application “primarily or unilaterally controlled” by the employer as evidence of control, the elimination of a redundant provision under Prong C, and the addition of a new subsection expressly stating that the regulations do not alter or eliminate any existing statutory exemptions, including the Unemployment Compensation Law’s longstanding exclusions for services performed by particular categories of workers.

WHAT DIDN’T CHANGE, AND WHY IT MATTERS

Despite several substantive revisions, the final regulations retain much of the proposal’s underlying framework. The broad definition of “usual course of business” under Prong B—covering any activity the employer “regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services”—remains unchanged, as does the expansive definition of “places of business” as extending to locations where the enterprise “conducts an integral part of its business.” For industries where independent contractors perform services integral to the company’s revenue stream, Prong B will continue to present challenges.

The final regulations also retain the provisions diminishing the probative weight of the parties’ contractual agreement where the company is the primary drafter, the terms are non-negotiable, or the company reserves the right to modify or terminate. This is of particular note for industries where regulatory requirements dictate contract terms or preclude the use of negotiable contract terms. Under Prong C, the final regulations still specify that holding a professional license, having multiple employers, registering a business entity, receiving a 1099 tax form, or carrying insurance are not individually sufficient to establish an independently established business. The regulations also emphasize the “duration, strength, and viability” of the worker’s business, which could penalize new entrepreneurs and discourage companies from engaging contractors without a long work history and established client base.

Critically, while the final regulations preserve existing statutory exclusions and exemptions, such as those built into the unemployment statute and recognized for overtime and minimum wage purposes, they do not apply those exclusions and exemptions across the board. That creates a scenario where an individual may be excluded from unemployment coverage under an existing statutory carveout but subject to the Earned Sick Leave Law, leaving uncertainty and inconsistency.

The NJDOL noted that it lacks the power to expand those statutory exceptions and exemptions to all statutes, signaling that the legislature should address that issue. The NJDOL also rejected pleas from numerous industries to create industry-specific exemptions that would recognize roles that have long been considered valid independent contractor engagements.

WHAT THIS MEANS FOR EMPLOYERS

The 120-day window before the final regulations take effect provides an opportunity for companies to revisit contractor engagements and compliance policies and for industry groups to consider potential judicial or legislative intervention. The New Jersey Business & Industry Association has already indicated it will press the Legislature for statutory adjustments, and several lawmakers have signaled their intent to introduce resolutions to block the final regulations. We expect that several industry groups will press for legislative changes or challenge the validity of the final regulations in court.

In the meantime, employers who rely on independent contractors in New Jersey should review existing contractor relationships against each prong of the ABC Test as interpreted by the final regulations. Employers in regulated industries should evaluate their compliance programs to clearly separate activities driven solely by regulatory requirements from operational management. All employers should review contractor agreements, documentation, and operational practices and should monitor legislative and legal developments closely as October 1, 2026 approaches.