The New Jersey Department of Labor and Workforce Development has introduced a proposed regulation—N.J.A.C. 12:11—that would codify and expand its interpretation of the “ABC test” that is used to determine whether a worker is classified as an employee or an independent contractor.
This proposal represents a significant shift with potentially disastrous consequences for independent insurance agencies throughout the Garden State.
What the rule proposes
Under the guise of providing clarity and codifying case law, the regulation meticulously details how the department would apply each prong of the ABC test—Prong A (control), Prong B (course of business), and Prong C (independent enterprise)—across multiple labor laws, including those governing unemployment insurance, wage payments and paid leave.
The proposed rule discourages the use of a checklist approach when evaluating worker classification, and instead it would emphasize that each case must be assessed based on the full context of the relationship.
It makes clear that written agreements labeling a worker as an independent contractor, possession of business licenses, or the use of IRS Form 1099 are not, by themselves, sufficient to establish independent contractor status.
Additionally, any control exercised by the employer for the purpose of complying with laws or regulations—such as mandatory training—still would be considered a form of employer control under the ABC test. Importantly, the rule also would reject the notion that limited earnings or part-time work automatically negate a worker’s classification as an employee.
While it draws from Supreme Court cases such as Carpet Remnant Warehouse v. NJDOL and East Bay Drywall v. NJDOL, the department’s proposed rule goes far beyond what these rulings require. It offers new interpretations, illustrative examples, and additional factors that make it significantly harder for businesses to classify workers as independent contractors.
Why PIANJ is sounding the alarm
At first glance, this might seem like a straightforward update to ensure compliance. But for independent insurance agencies, the implications are alarming.
Fundamental reclassification risk. The rule could open the door to treating agencies as employees of insurance carriers under state law. This would eviscerate the foundation of the independent agency channel, which thrives on autonomy and entrepreneurialism.
Burden of proof and compliance. Agencies would face an onerous and uncertain burden of proof to demonstrate independence under all three prongs of the ABC test. Even routine carrier-agent relationships could be scrutinized and recharacterized.
Control and compliance trap. The proposed regulation would treat any control exercised for legal or regulatory compliance as potentially disqualifying under Prong A. This interpretation is particularly dangerous in a highly regulated industry like insurance, in which agencies must align closely with carrier standards and legal obligations.
Vague and expansive criteria. From control factors to what constitutes a “place of business,” the department’s expansive definitions threaten to capture legitimate business relationships in a net intended for labor abuses in other sectors.
PIANJ’s strong advocacy and call to action
Recognizing the existential threat this rule poses, PIANJ has been engaged in a full-court press to protect its members. PIANJ has met directly with Gov. Phil Murphy’s office and key legislative leaders to express its deep concerns and explain the unique nature of insurance agency operations.
Next steps
PIANJ is actively advocating for a public hearing, an extension of the comment period, and—if necessary—an exemption for individuals and entities licensed by the Department of Banking and Insurance.
PIANJ will continue to provide updates, resources and advocacy support as this issue unfolds. We believe that regulatory clarity must not come at the cost of business viability and professional independence.
Let’s ensure that New Jersey remains a place where independent agents can thrive—not just survive.
Bradford J. Lachut, Esq.
Bradford J. Lachut, Esq., joined PIA as government affairs counsel for the Government & Industry Affairs Department in 2012 and then, after a four-month leave, he returned to the association in 2018 as director of government & industry affairs responsible for all legal, government relations and insurance industry liaison programs for the five state associations. Prior to PIA, Brad worked as an attorney for Steven J. Baum PC, in Amherst, and as an associate attorney for the law office of James Morris in Buffalo. He also spent time serving as senior manager of government affairs as the Buffalo Niagara Partnership, a chamber of commerce serving the Buffalo, N.Y., region, his hometown. He received his juris doctorate from Buffalo Law School and his Bachelor of Science degree in Government and Politics from Utica College, Utica, N.Y. Brad is an active Mason and Shriner.
