On May 5, 2026, the New Jersey Department of Labor and Workforce Development (“NJDOL”) filed its final rule adopting N.J.A.C. 12:11, which provides regulatory guidance on how the state’s longstanding “ABC” test is applied to determine whether a worker is an employee or an independent contractor. The final rule, which carries an operative date of October 1, 2026, arrives after a contentious rulemaking process that drew sharp criticism from financial services and insurance to construction and app-based transportation. While the ABC test itself is nothing new in New Jersey—it has been the statutory standard for nearly 90 years—these rules represent the first comprehensive regulatory framework explaining how the NJDOL interprets and applies the test. Critically, the ABC test in New Jersey governs not just unemployment insurance but also the state’s Wage and Hour Law, Wage Payment Law, Earned Sick Leave Law, and Temporary Disability Benefits Law, giving these rules a practical reach far broader than similar regulations in most other states. Employers operating in the state should begin evaluating their independent contractor relationships now to prepare for implementation.
Background: New Jersey’s ABC Test
Under New Jersey law, any service performed for remuneration is presumed to be “employment” unless the putative employer demonstrates that the worker satisfies all three prongs of the ABC test. The burden of proof rests squarely on the business to establish 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;
- the services are either outside the usual course of the employer’s business, or are performed outside of all of the employer’s places of business; and
- the individual is customarily engaged in an independently established trade, occupation, profession, or business.
If a worker fails any single prong, the worker is classified as an employee.
The NJDOL first proposed the rule in May 2025, in part responding to a suggestion by the New Jersey Supreme Court in East Bay Drywall, LLC v. Dep’t of Labor and Workforce Development, 251 N.J. 477 (2022), that the Department exercise its statutory authority and expertise to promulgate guidance on the application of the ABC test. The proposed rule proved controversial, and the NJDOL made a number of significant changes before filing the final version.
What Was Scaled Back
The proposed rules represented an aggressive initial interpretation of the ABC test, one that many commenters argued went beyond the statutory text and existing case law. Among other things, the proposal included industry-specific examples that effectively pre-determined classification outcomes for certain workers, treated a business’ use of software or digital platforms as evidence of control, required workers to demonstrate they actually performed work for other businesses (rather than merely having the right to do so) in order to satisfy Prong C, and adopted an expansive definition of “places of business” that could have swept in virtually any off-site work location.
After reviewing hundreds of public comments and conducting a public hearing, the NJDOL removed or narrowed each of these provisions on adoption. Perhaps most notably, the final rule now provides 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,” a reversal from the proposed rule, which had treated legally compelled supervision as evidence of an employment relationship.
What the Final Rule Requires
Despite these concessions, employers should not mistake the scaled-back provisions for a wholesale retreat. The final rule retains the bulk of the proposed regulatory framework, and the requirements that remain are significant:
- Burden of proof. As a threshold matter, the final rule codifies that the putative employer bears the burden of establishing all three prongs of the ABC test. Because the test is conjunctive, failure to satisfy any single prong results in classification of the worker as an employee.
- Prong A—Freedom from control or direction. The rule enumerates nine factors relevant to whether a worker is free from control or direction, including whether the worker is required to work set hours, whether the business controls the details and means of performance, whether services must be rendered personally, whether the business sets the rate of pay, whether the worker bears risk of loss, and whether the business provides training. These factors are not a checklist—no single factor is dispositive—and additional factors may be considered.
- Prong B—Outside the usual course of business or places of business. The rule defines “usual course of business” as the activities the employer regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services. “Places of business” refers to locations where the enterprise has a physical plant or conducts an integral part of its business. Notably, the final rule codifies that a worker’s personal residence where they perform remote work shall not be considered among the putative employer’s places of business, a helpful clarification for employers utilizing remote workers.
- Prong C—Independently established trade or business. The rule sets out factors for evaluating whether a worker is in an independently established business, including the duration and strength of the business, number of customers, amount of remuneration received from the putative employer compared to others, number of employees, whether the worker sets their own rate of pay, and whether the worker advertises and is available in the relevant market. Importantly, the rule makes clear that certain formalities do not, by themselves, satisfy this prong: an independent contractor agreement does not establish contractor status; a 1099 filing does not transform an employee into an independent contractor; business registration or insurance alone is not sufficient; and having multiple jobs is not the same as having an independently established business.
- Statutory exemptions preserved. Finally, the final rule adds a new subsection expressly clarifying that it does not alter or eliminate any existing statutory exemptions from coverage, including exemptions for insurance producers, white-collar professionals, and other categories already excluded by statute.
Action Items for Employers
Companies that engage independent contractors in New Jersey should consider the following steps before October 1, 2026:
- Audit existing contractor relationships. Evaluate whether your current independent contractors can satisfy all three prongs of the ABC test as interpreted by the final rule. Pay particular attention to workers who perform services within your core line of business (Prong B) or who depend primarily on your company for their income (Prong C).
- Review contracts and agreements. While the final rule makes clear that a written independent contractor agreement does not, on its own, establish contractor status, the terms of such agreements are still relevant—particularly clauses that reserve control, restrict competition, or permit unilateral modification.
- Evaluate control indicators. Assess whether you set schedules, require uniforms or branding, mandate specific tools or reporting, fix pay rates, or provide training to your contractors. Each of these is a factor under the final rule’s Prong A analysis.
- Consider reclassification where warranted. For workers who cannot satisfy all three prongs, evaluate the cost and operational impact of reclassification before the rule takes effect, rather than facing potential liability in an enforcement action or benefit claim.
