On May 5, 2026, the New Jersey Department of Labor and Workforce Development (NJDOL) adopted N.J.A.C. 12:11, a rule addressing the framework of the ABC test—the test for determining whether a worker ha
s been properly classified as an employee under the Unemployment Compensation Law, Temporary Disability Benefits Law, Wage Payment Law, Wage and Hour Law, Earned Sick Leave Law and the Call Center Jobs Act. The ru
le takes effect October 1, 2026. New Jersey employers who retain independent contractors should understand the rule’s requirements and take steps now to evaluate whether they have classified such workers properly.
How Does the ABC Test Work?
Whenever a worker performs services for compensation in New Jersey, the worker is presumed to be an employee unless the purported employer can demonstrate that the worker satisfies the following three prongs of the ABC test:
Prong A requires that the individual has been and will continue to be free from control or direction over the performance of services, both under the contract and in fact.
Prong B requires that the services are either outside the usual course of the employer’s business or are performed outside of all the employer’s places of business.
Prong C requires that the individual be customarily engaged in an independently established trade, occupation, profession or business.
The burden of satisfying the ABC test rests entirely on the employer. If the employer fails to satisfy any single prong, the worker will be deemed an employee.
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Prong A: What Constitutes “Control” Over a Worker?
The rule enumerates nine non-exhaustive factors the NJDOL will consider when evaluating if a worker is free from control or direction:
Whether the worker is required to work set hours or jobs;
Whether the employer controls the details and means of performance;
Whether the services must be rendered personally;
Whether the employer negotiates for and acquires the services performed by the worker;
Whether the employer fixes the rate of pay;
Whether the worker bears the risk of loss;
Whether the worker is required to be on call or on standby;
Whether the employer limits the worker’s ability to work for others; and
Whether the employer provides training.
No single factor will automatically determine the outcome, and the NJDOL can consider other factors as well.
Significantly, the rule includes a safe harbor for control exercised for regulatory and legal compliance reasons. This means that actions taken by a purported employer solely to comply with federal, state or local laws or regulation
s will not, standing alone, be considered evidence of control or direction under Prong A. This is a significant change from the proposed rule, which would have
treated mandatory legal compliance as evidence of control. This safe harbor is particularly relevant for businesses in heavily regulated industries.
Prong B: Is the Work Part of the Employer’s Business or Performed at the Employer’s Locations?
Prong B can be satisfied in one of two ways. Either the worker’s services are outside the employer’s usual course of business, or the services are performed outside of all the employer’s places of business. The rule defi
nes “usual course of business” as activities the employer regularly engages in to generate revenue or develop, produce, sell, market or provide goods or services. An entity may have more than one usual course of business.
The rule defines “places of business” broadly to include not only locations where the employer has a “physical plant,” but also any location where the emp
loyer conducts an integral part of its business. This is consistent with the New Jersey Supreme Court’s decision in Carpet Remnant Warehouse, Inc. v. New Jersey Dep’t of Labor, 125 N.J. 567 (1991).
A “physical plant” includes a physical office, store or factory where a substantial amount of the employer’s work is performed. Critically, the “integral part of its busin
ess” standard means that the NJDOL may treat locations beyond the employer’s own offices as the employer’s places of business, including, for example, client sites, customer locations, job sites or any other location where the employer’s core business activities are regularly conducted.
