- Freelancers, contractors and groups of independent business owners are going into overdrive in New Jersey to fight legislation on worker misclassification that they fear will devastate their businesses.
- Bills are in the state senate and assembly to codify existing state law on worker classification before the new legislative session starts on Jan. 14.
- Both experts and business owners say the New Jersey companion bills have defined contractors so broadly it will make it harder to operate an independent business in the state.
Freelancers, contractors and groups of independent business owners are going into overdrive in New Jersey to fight legislation on worker misclassification that they fear will devastate their businesses, in the wake of backlash against AB-5, a similar law in California.
At issue are Senate Bill 4204, sponsored by Democratic State Senator Stephen F. Sweeney, who is Senate President and vice president of the International Association of Ironworkers; and Assembly Bill 5936, sponsored by Democratic Party Assemblymen Joseph Egan, Wayne DeAngelo and Thomas Giblin.
Legislators worked over the weekend to refine the language of the bills, which the sponsors say are intended to codify existing state law on worker classification before the new legislative session starts on Jan. 14.
Asked when the language will be finalized, Sweeney tells CNBC, "as soon as I'm ready."
"People are saying, 'He's rushing it through,'" Sweeney said. "We're not rushing it through. We're not trying to sneak anything in between Christmas and New Year's. No one has to worry about us just throwing it out in the middle of the night. We're not doing it."
Sweeney said the law is aimed at providing protections to workers in industries such as construction who should be put on payroll but are currently being misclassified as independent contractors. "We're codifying the law so a different administration doesn't come in and change the regulations so more people can cheat," he said.
Employers who use independent contractors save on overtime costs, health-care expenses, taxes and more, and Democrats say they want to protect workers by making it harder for businesses to say someone's not an employee when they really are.
Sweeney said late Friday afternoon that legislators had taken a lot of testimony on the bill and were taking it into account.
"We're going through it to see what tweaks we can make to treat independent workers fairly but also not let people overreach," he said.
Kevin McArdle, communications director for the New Jersey Assembly Majority office, says legislators plan to get revised language to caucus members this week. If the bill does not pass by Jan. 13, it will die and the process will have to begin again after the new legislative session starts, he says.
Hearings scheduled for Jan. 6 in Trenton could potentially include discussion of the bill, says McArdle. They could also be scheduled on Jan. 9, he said.
Legislators will have to post notice by Jan. 2 if a hearing on January 6 will take place, under the 48-hour rule.
"We won't know until Jan. 2," McArdle says. "We have to make sure we agree with what the Senate wants to do and the Senate agrees with what we want to do."
McArdle said phones have been ringing nonstop at the Assembly from business owners concerned about the legislation. A number of business groups have called for changes in the bills, among them the U.S. Chamber of Commerce, the New Jersey Business and Industry Association, the Association of Bi-State Motor Carriers, and the New Jersey Trucking Association. The Teamsters Union has testified in favor of the legislation.
"We're acutely aware of the concerns," says McArdle. "I had three meetings on this topic today alone and probably eight phone calls. It's like that every day."
The calls are coming from a variety of industries, he said.
"You name it — we have heard from every corner you can imagine — the trucking industry, freelancers, real estate people," McArdle said. "Uber and Lyft drivers are another group. They think it would hurt them, too."
Sweeney says the bill is not intended to change the situation of people properly classified as independent contractors. "If you live in New Jersey and you're a freelance writer, nothing changes for you, even with this bill," Sweeney said. "It's the law they have been working under right now. We've been disagreeing with freelancers' interpretation since the beginning."
The controversy centers on how independent contractors will be defined in the law — a heated issue in New Jersey.
The state labor department ruled Nov. 25 that Uber owed the state more than $640 million in employment taxes because it treated workers who should have been classified as employees as contractors.
The Senate and Assembly bills are part of a package of legislation that will make it harder to classify workers in the state as independent contractors. One bill would impose penalties for worker misclassification of $250 for the first violation, and $1,000 for any subsequent violations.
Both experts and business owners say the New Jersey companion bills have defined contractors so broadly it will make it harder to operate an independent business in the state — one widely known for a tax climate that is already challenging to business — and for businesses to employ contractors. Real estate agents, accountants and insurance brokers have been exempted but many other types of independent workers are worried they will be affected and lose work.
The very broad language of AB-5, California's new worker misclassification law, has sparked an outcry from business owners in the state who say they are losing work even prior to the law taking effect on Jan. 1.
The intent of AB-5 was to protect rideshare drivers but because the language was so broad, many other types of independent workers got swept into it and are now finding their work drying up, as employers deem it too much of a hassle to work with California-based freelancers.
"If you throw a hand grenade at a group of people, you don't kill just one," says Steve King, partner in Emergent Research, a consultancy in Walnut Creek, California, that studies independent workers.
The American Society of Journalists and Authors (ASJA) and the National Press Photographers Association, represented by the Pacific Legal Foundation, filed a lawsuit challenging AB-5 on Dec. 17, saying the law is "full of unfair exemptions and carve-outs that disfavor freelance journalists compared to other professions that engage in speech.
"We believe we are all small businesses," says Randy Dotinga, a board member, former president of ASJA and full-time freelancer for 20 years. "We want to freelance. We don't want to be on staff. For many of us, it's more lucrative and secure than working for a media outlet. The media is a dying profession. Freelancing allows us to survive."
Some employers are now publicly advertising that California freelancers are not eligible to work for them or letting go of California freelancers in anticipation of the law taking effect.
Vox Media recently announced it was cutting hundreds of freelance jobs in preparation for the California law. That move primarily affects the Vox publication SB Nation, a sports blog based in New York City which plans to end contracts with about 200 journalists who were covering sports in California and will instead create a new team of its employees to do that work.
"Our clients don't want to deal with this, especially the ones from out of state," Dotinga said. "They're blacklisting us. They're saying we don't want to work with California freelancers."
Dotinga says the way the bill was written represents "a complete lack of understanding about how we work."
For example, it caps freelance submissions for a single publication to 35 a year, ignoring the fact that many writers have weekly columns.
King, at Emergent Research, predicts that the outcry against AB-5 will get louder once the law takes effect Jan. 1. "A lot of people don't yet know this is happening," he says. "They are going to find out next year and are going to get shocked. Those are the people who are currently independent contractors."
Many independent workers fear New Jersey's law will have a similar effect.
The latest version of New Jersey's SB 4024, amended Dec. 5, says a business that hires an independent worker must be able to prove three things to classify them as an independent contractor:
- The individual has been and will continue to be free from control or direction over the performance of the service, both under the individual's contract of service and in fact; and that service is performed, or the service is performed outside of all the places of business of the enterprise for which the service is performed;
- The individual's service is either outside the usual course of the business for which that service is performed, or the service is performed outside of all the places of business of the enterprise for which the service is performed; and
- The individual is customarily engaged in an independently established business or enterprise of the same nature as that involved in the work performed.
Part B, the most controversial element of the law, was modified in response to feedback. In an earlier version, Part B said employers had to prove the service was outside the usual course of business without including the alternative of proving the work was done off-premises.
Many are still concerned that this provision could be interpreted as banning contractors from setting foot in a client's place of business for meetings, lest they be considered employees — making it hard for them to conduct normal business operations.
"When I read that you can't visit the company, that shows whoever was writing the law may have never even worked in business," King said.
"One of the biggest issues is the people writing the laws don't understand what they are doing," he added. "They don't know enough about business or independent work to understand how their laws are impacting a lot of people they are not even thinking about."
Fight for Freelancers, a Facebook group to protest the New Jersey law that grew to almost 1,000 members in three weeks, has formed to protest it. The group includes a variety of solo entrepreneurs, among them writers, musicians, therapists, truckers, yoga teachers and interpreters.
Kim Kavin, a freelance writer who is one of the Facebook group's organizers, wrote an op-ed against the New Jersey bills in The Washington Post that has been widely circulated.
She is skeptical of Sweeney's claim that he is not changing the situation of legitimate independent contractors through the legislation.
Kavin and others question why legislators are trying to pass the law at all if it will not change anything.
"Clearly, something is changing," she says. "You have to look at what's happening in California. There is chaos going on there. It's going to happen here, too."
Kavin says that many people who choose self-employment are women raising families, caregivers, people with disabilities and older people pushed out of traditional employment by age discrimination. They do not always have the option of taking a staff job or want one and are fearful they will lose their ability to earn a living, she says.
"It's scary and insulting," Kavin said. "Quite frankly, a lot of our members are women and Democrats. They feel betrayed by their own party. It's very hard to understand how it has come to this and so quickly."
Correction: New Jersey Assemblymen Joseph Egan, Wayne DeAngelo and Thomas Giblin sponsored New Jersey Assembly Bill 5936. An earlier version misstated the bill's sponsor.
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