ACR177 and the Future of NJ's ABC Test: Why the Legislature Is Fighting the Labor Department's Misclassification Rules

Worker classification remains one of the most contested issues in New Jersey. The state's ABC test is already among the strictest standards in the country for determining whether a worker is an employee or an independent contractor. 

Classification disputes turn on how the ABC test is interpreted rather than the title a worker carries. ACR177 reflects a growing disagreement over the Department of Labor's proposed misclassification rules and whether those regulations go beyond what the Legislature originally intended. Those same issues often shape the misclassification cases our attorneys at Brandon J. Broderick develop, where the outcome depends on the substance of the working relationship rather than the label attached to it. 

Changes to the ABC test can affect who is classified as an employee and who is treated as an independent contractor. This influences wages, benefits, tax obligations, and workplace protections.

In this guide, we discuss what the bill seeks to accomplish, why lawmakers are challenging the Department of Labor's approach, what the dispute could mean for businesses, and when to contact an independent contractor lawyer in New Jersey. 

How East Bay Drywall Shaped New Jersey's ABC Test

Under New Jersey's Unemployment Compensation Law, any worker performing services for a business is presumed to be an employee. 

To classify someone as an independent contractor, the hiring company has to satisfy all three parts of the ABC test. Failure to meet even one means the worker is considered an employee.

New Jersey's ABC test requires employers to satisfy all three parts of the standard:

• Prong A: The worker must be free from the company's control or direction in performing the work.
• Prong B: The work must be performed outside the company's usual course of business or outside all of the company's places of business.
• Prong C: The worker must operate an independently established business, trade, occupation, or profession.

Meeting two of these requirements is not enough. The employer must satisfy all three parts of the classification test. 

Before 2015, it was unclear whether the ABC test applied beyond unemployment insurance. In Hargrove v. Sleepy's, LLC, the New Jersey Supreme Court resolved the issue. 

Sleepy's had classified its delivery drivers as independent contractors. The workers later filed claims alleging violations of New Jersey's wage-payment and wage-and-hour laws. The court concluded that the ABC test isn’t limited to unemployment cases. It also applies to claims brought under New Jersey's Wage Payment Law and Wage and Hour Law. That decision expanded the test's role. 

In East Bay Drywall, LLC v. Department of Labor and Workforce Development, the Supreme Court addressed Prong C directly. East Bay Drywall hired workers on a per-job basis for drywall installation, taping, and finishing. 

The Department of Labor reviewed the company's workforce after it stopped reporting wages. According to the audit, many of the workers treated as subcontractors had been misclassified. 

East Bay owed $42,120 in unpaid unemployment and temporary disability contributions. Several of the workers had formed their own LLCs, carried liability insurance, and filed as independent businesses. The court held that forming a business entity alone doesn't prove a worker operates an independently established business under Prong C. 

Prong C focuses on whether the worker operates a genuine independent business rather than relying on a single company for work. Courts look for factors such as:

• Multiple clients or customers
• Independent marketing efforts
• A business that can continue operating if the relationship with the hiring company ends

In Carpet Remnant Warehouse v. New Jersey Department of Labor, the court noted that a worker who becomes unemployed when the relationship ends generally doesn’t satisfy Prong C. 

The court noted that additional guidance could help address classification issues involving remote work and gig workers. Those questions have become increasingly common as work arrangements continue to change. Speaking with an independent contractor attorney in New Jersey can help clarify how the ABC test applies in a particular situation. 

The NJDOL's New Rules for Applying the ABC Test

On May 5, 2025, the New Jersey Department of Labor and Workforce Development proposed new regulations to codify the application of the ABC test. 

Governor Phil Murphy's administration promoted the proposal as part of its ongoing focus on worker misclassification. The effort was presented, in part, as a response to the New Jersey Supreme Court's observations in East Bay Drywall about the need for greater clarity regarding the ABC test.

Murphy left office before the rules were adopted, and the decision was passed to incoming Governor Mikie Sherrill. The NJDOL made targeted revisions based on feedback:

• Compliance with industry-specific legal obligations, such as carrying required insurance or using mandated software, doesn’t by itself establish employer control under Prong A.
• A worker's personal residence, when used for remote work, will not normally be treated as the putative employer's place of business under Prong B.
• Several examples from the proposed version that employers argued created ambiguity were removed.

The regulations use the same standard across several laws enforced by the NJDOL, including:

• Unemployment benefits laws
• Wage and hour laws
• Wage payment laws
• Earned sick leave requirements
• Temporary disability benefits laws

A single misclassification finding can trigger liability in several areas at once. Our attorneys often see situations where an issue that initially appears limited to one worker reflects a classification practice affecting an entire workforce. 

Why ACR177 Challenges the NJDOL's Worker Classification Rules

On December 8, 2025, months before the rule was adopted, Assembly Concurrent Resolution 177 was introduced. 

ACR177 represents the Legislature's position that the NJDOL's proposed regulations do not reflect what lawmakers intended when they enacted the underlying statutes. Through the resolution, lawmakers are calling on the Department to revise or withdraw the proposal. 

The Legislature has the authority to take that step under the New Jersey Constitution, which allows it to review agency regulations for consistency with legislative intent. 

• If the Legislature believes a regulation does not reflect the intent of the law, it can formally notify the Governor and the agency. The agency can then change the rule or withdraw it. 
• If no action is taken, the Legislature can take additional steps to invalidate the rule. That process requires a public hearing, a waiting period, and approval by a majority of the full membership of both legislative chambers. 

ACR177 argued that the NJDOL was treating common business practices as evidence of employer control. This included things like digital apps or software platforms.

The resolution also argued that the proposed rules gave less weight to factors traditionally associated with independent contractor status. Under the regulations, professional licenses, multiple clients, liability insurance, and receiving a Form 1099 wouldn’t automatically establish that a worker is an independent contractor.

One of the main proposed rules would apply Prong B to rideshare couriers and delivery drivers. Under the regulations, a driver's personal vehicle could be treated as part of the company's place of business. This makes it more difficult to qualify as a freelancer.

The ABC test was intended to evaluate worker classification based on the facts of the working relationship. Critics argue that the proposed regulations give less weight to several traditional signs of independence, making it more difficult for workers to qualify as independent. Those same factors often become central to the misclassification cases our attorneys build at Brandon J. Broderick. 

ACR177 and the Future of Worker Classification in New Jersey

Independent contractors play a significant role in many parts of New Jersey's economy, including construction, trucking, financial services, insurance, freelance work, app-based transportation and delivery, and professional consulting. Changes to the ABC test can affect a large number of workers and businesses across the state.

The stakes are also high for employers. A misclassification finding can create liability under multiple employment laws. For example:

• Back wages and overtime under the Wage and Hour Law
• Unpaid unemployment contributions
• Temporary disability benefit obligations
• Earned sick leave liabilities
• Penalties under the Wage Payment Law

A 2018 review conducted by the New Jersey Department of Labor found widespread worker misclassification, including more than $460 million in underreported wages. Since then, officials reported recovering roughly $84 million through enforcement actions. A substantial portion of those funds is going back to workers. 

How California's Experience Shapes the Current Debate in NJ

California followed a similar path in 2019 when it adopted the ABC test through Assembly Bill 5. The change prompted significant debate, particularly among industries that relied heavily on independent contractors.

Within a year, lawmakers approved more than 100 exemptions for various professions, and voters later passed Proposition 22 for rideshare and delivery drivers. New Jersey's regulations don’t include comparable exemptions and instead apply the same standard across all industries.

The NJDOL maintains that the regulations don’t create new law. The goal is to bring existing court decisions together in one place and provide businesses with clearer guidance. The test itself remains unchanged.

NJBIA has taken the position that the ABC test was originally developed for unemployment insurance purposes and has steadily expanded into other areas of employment law over time. Much of that expansion occurred through court decisions and agency action rather than through legislation.

What Businesses and Workers Should Watch Going Forward

The debate over ACR177 is still unfolding, but the underlying ABC test remains established in New Jersey law. Regardless of what happens with SCR62, future litigation, or the regulations themselves, businesses and workers will continue operating under one of the nation's strictest worker-classification standards.

Questions about worker classification are often highly fact-specific. If you have concerns about your rights under New Jersey law, contact us today for a free consultation.