On May 5, 2026, the New Jersey Department of Labor and Workforce Development (the “NJ DOL”) adopted a new final rule (the “New Rule”) to implement the “ABC Test,” which has long been used to evaluate whether a worker is classified as an independent contractor or employee for purposes of the New Jersey Unemployment Compensation Law, the New Jersey Wage Payment Law, and the New Jersey Wage and Hour Law.
In its response to comments about the proposed rule before its final implementation, the NJDOL emphasized that the New Rule draws upon the existent application of the ABC Test and is therefore not meant to alter or change how independent contractors are currently classified. Nonetheless, these developments warrant employers to conduct a renewed review of their independent contractor agreements, existing job descriptions, and current worker classifications to ensure compliance with the New Rule.
The ABC Test
The ABC Test is set forth in New Jersey’s Unemployment Compensation Law and was originally used in that context to determine whether a worker is an employee or independent contractor. In Hargrove v. Sleepy’s, LLC, 220 N.J. 289, 316 (2015), the New Jersey Supreme Court subsequently held that the ABC Test also applies when deciding the issue worker classification under the New Jersey Wage Payment Law and the New Jersey Wage and Hour Law.
Under the ABC Test, it is presumed that a worker is an employee unless the employer can demonstrate all three of the following:
- “Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;” and
- “Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed;” and
- “Such individual is customarily engaged in an independently established trade, occupation, profession or business.”
N.J.S.A. 43:21-19(i)(6).
Since the ABC Test was codified in New Jersey statute, a substantial body of case law has developed the contours of the ABC Test by interpreting and applying it to various positions and different worker scenarios.
The NJ DOL’s New Rule
The New Rule provides more guidance for employers regarding proper worker classification under the ABC Test. Among other provisions, the New Rule provides several non-exhaustive factors that may be considered in evaluating the degree of control or direction (or lack thereof) an employer exercises over an individual’s work under Prong A of the Test, such as “whether the individual is required to work any set hours or jobs” and “whether the putative employer requires the individual to use specific tools, supplies, or materials.”
In addition, the New Rule provides more guidance on what may be considered services “outside” a company’s “usual course of business” under Prong B. For example, for purposes of evaluating whether services are performed “outside places of business,” the New Rule provides that “place of business” refers to “locations where the enterprise has a physical plant or conducts an integral part of its business,” and does not include “[a]n individual’s personal residence where they perform remote work.”
The New Rule also includes a non-exhaustive list of factors that could bear on whether an individual may be considered “customarily engaged in an independently established trade, occupation, profession or business” under Prong C. These factors include, but are not limited to, “[t]he duration, strength, and viability of the individual’s business (independent of the putative employer)” and “[w]hether the individual sets their own rate of pay.”
The New Rule reiterates that whether a worker should be classified as an independent contractor or an employee is a fact-sensitive analysis conducted on a case-by-case basis with no set number of factors that are determinative.
Implications for Employers
In adopting the New Rule, the NJ DOL explained that its purpose in adopting the New Rule is to synthesize already existing policy and case law. In that regard, the NJ DOL has stated the New Rule is meant to better inform businesses and employees about the principles behind the ABC Test and provide clearer guidance about the differences between employee and independent contractor classifications.
Accordingly, employers should consult with legal counsel to meaningfully review their (i) existing agreements with independent contractors and (ii) their existing classifications of workers to evaluate compliance with the ABC Test’s governing principles as articulated in the New Rule. In addition, going forward, employers should utilize the principles set forth in the New Rule to determine that they are properly classifying their workers.