Regulation

New Jersey Takes a Swipe at the Gig Economy With New Independent Contractor Bill

Critics warn the state is threatening the flexible work arrangements preferred by many workers.

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New Jersey has been cracking down hard on the gig economy, with state regulators and lawmakers both trying to put an end to businesses classifying their workers as independent contractors.

App-based businesses like Uber, Lyft, and Doordash make heavy use of contract workers to perform rides or drop off meals. These companies argue their business model helps them keep costs down, while offering people work opportunities that are far more flexible than traditional employment.

Critics contend that these companies are misclassifying their employees as independent contractors to avoid paying standard benefits like unemployment insurance, overtime, and minimum wage.

Those critics include the New Jersey Department of Labor and Workforce Development, which issued Uber a $649 million fine for unpaid unemployment and disability insurance taxes.

Uber, for its part, argues its drivers are properly considered independent contractors, and that it doesn't owe the state any back taxes.

"We are challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere," an Uber spokesperson told The New York Times last week.

A bill pending in the state legislature would clear up this dispute by declaring all Garden State workers, baring a few exceptions, to be employees.

In early November New Jersey Senate President Stephen Sweeney (D–Glouchster) introduced legislation that would classify all "individuals who perform services for remuneration" to be employees unless determined otherwise by the state's Labor Commissioner using a three-part test.

That "ABC" test is closely modeled off of California legislation that passed in September.

In order for someone to be considered an independent contractor, the test requires them to be "free from control or direction over the performance of the service" (meaning they select their own jobs and hours), that they are performing work outside the normal course of business from the entity hiring them, and that they are customarily engaged in the same kind of work they are being hired to do.

This would preclude firms like Uber or Lyft from counting their drivers as independent contractors because performing rides is within those companies' normal course of business.

New Jersey has technically had an ABC test for several years now, courtesy of a 2015 State Supreme Court decision which replaced a previous, more relaxed six-part balancing test.

This court-created ABC test was a bit laxer than what the legislature is proposing. It allowed workers to be counted as contractors if the work they were performing outside the normal course of business of the hiring entity, or if the work was being "performed outside of all the places of business" of the hiring entity.

Sweeney's legislation makes the test more rigorous by dropping the latter condition.

Forcing app-based businesses to count their workers as employees could raise their costs as much as 20 percent, according to Bloomberg Law. It could also put an end to flexible employment options many people have come to rely on, says Jarrett Dieterle, a policy analyst at the R Street Institute.

"A lot of workers and independent contractors want to stay independent contractors on purpose because it fits their lifestyle and what they're able to do work-wise better," Dieterle told me.

A 2018 Bureau of Labor Statistics survey found 79 percent of independent contractors preferred their current work arrangement to traditional employment.

Reclassifying workers en mass would force these people to find more rigid, traditional employment they might not necessarily want, Dieterle argues.

It's an argument rideshare companies have made themselves. Lyft drivers "overwhelmingly prefer the freedom of working where, when, and how much they want. Many are moms, students, seniors, or veterans, and 75% of them drive less than 10 hours a week," the company told Reason when California's independent contractor bill, AB 5, was still pending. That legislation would "would force ridesharing drivers into shift work, eliminating the control drivers currently have over their own schedules."

Lyft, Uber, and other app-based businesses are pushing a ballot initiative that would alter AB 5 to exempt their workers from being employees.

It's not just the gig economy that is balking at these new regulations. The trucking industry has also deemed them too restrictive, arguing that they effectively make it impossible for motor-carrier companies to contract with owner-operator truckers.

This month, California was hit with a lawsuit from the California Trucking Association and two owner-operator truckers who're arguing that the state's ABC test is pre-empted by federal law.

New Jersey trucking advocates are making similar claims about Sweeney's bill.

"This bill will fundamentally change the transportation business model that has existed for over 100 years," said Salvador Simao, an attorney and former New Jersey Motor Truck Association board member, to Fox Business. "This transformation will make New Jersey the most restrictive country in terms of utilizing owner-operators."

Dieterle says that there are reasonable concerns about ensuring workers retain certain benefits and protections in a world where fewer and fewer of them have traditional employment. But, he argues, there are less heavy-handed ways of doing that than a wholesale reclassification of workers.

A July 2019 policy brief put out by R Street and Tech Freedom, another think tank, suggests several alternative models, including a "safe harbor" approach that would evaluate whether a worker is an independent contractor or not based on how closely their work is tied to one firm, or a "portal benefits" model where contractors could purchase traditionally employer-provided, non-cash benefits from independent entities.

Not all of these alternatives are necessarily palatable to libertarians. A true free market approach would naturally involve letting the relationship between workers and employers evolve along with the rest of the economy. But those options would be less bad than the approach taken by states like New Jersey and California.

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  1. Is Uber happy with the arrangement over all? Obviously yes, because they decided to pay and engage in business with the driver. Is the driver overall happy with the arrangement? Obviously also yes because the decided to driver for Uber in exchange for money. If either party was unhappy with the arrangement, either could decide to not engage in business with the other or stop engaging in business with the other at any time. This is completely voluntary by both parties involved and there is no victim here, hence there is no crime. If only that was the litmus test for the validity of a regulation.

    1. The crime is not paying protection money to the state (unemployment insurance, etc.)

    2. This is really the right response. How does restricting this behavior possibly help? Ok, suppose you ban these arrangements. Clearly, the gig workers won’t move on to something better–otherwise, they would have done that already!

      Sometimes I think that this is because central planners tend to think that wealth and jobs just sort of magically appear, and that they can shuffle things around as they please with no or minimal impact on the amount of wealth or opportunity created in total.

      1. The Unions may be pushing this to try to lasso drivers into paying them dues which they then share with their political cronies.

        1. Sounds entirely likely.

  2. This fucking state.

    1. It’s like California with higher taxes and without the nice weather.

      1. And Quebecoi and Philly tourists during the summer.

        1. People go to Jersey for vacay??

          I remember when Atlantic City was touted as the Vegas of the East. I’ve been to Vegas many times, and I was driving to New York from Virginia in 2002, so thought I’d stop by to play some black jack. That place sucks!!

  3. And fuck you, New Jersey Senate President Stephen Sweeney (D–Gloucester)

    /Unicorn Abattoir (?-Gloucester)

    1. I’m in Burlington County. Frankly, the whole lot (Governor, Senate, Assembly) need to go. They piss away money like crazy. And the bond debt level is astronomical.

      In the People’s Republic of NJ, there is no reason, logic or rationality,

      1. And they want to raise taxes even more.

        Only a referendum will change NJ, and the people aren’t there yet.

        1. I found it hysterically funny that the Team D Legislature got into a pissing match with the Team D governor over spending. With the Legislature telling the Governor he was raising taxes too much. You cannot make this shit up. Sweeney telling Phailing Phil…Yo, those taxes are TOO high.

  4. So why does no one incorporate?
    When I was an independent contractor, I incorporated for liability reasons and for the clear contractual relationship between companies. It wasn’t that expensive (then, in FL) and only took a couple hours a year to stay compliant with paperwork. (Record minutes of board meetings, file one annual report)
    The nanny-states would have a much harder time “declaring” and employee/employer relationship when both parties are actual corporations.

    1. That does look like an excellent workaround. Is there anything in the California or NJ provisions that would scuttle such an arrangement for, say, an Uber driver? Like, for instance, would it require someone in the chain to be an employee? Is it less onerous for your own corporation to have yourself as an employee?

    2. Really not an option. These statutes do not recognize your IRS filing status.

    3. If you read the details of the ABC test, incorporation doesn’t matter. That used to be a workaround but, well, it actually worked. CA and NJ can’t allow that.

  5. man South Jersey was a hoot when i was a teenager and didn’t pay the taxes …

    1. And they keep going up.

      Interesting observation from the election a few weeks ago – A majority of state assembly elections in South Jersey went to Republicans. Muni-level elections stayed overwhemingly Democrat.

      Of course those Godless Northerners still voted blue at the state level.

      1. there was a movement to split the state in the early 80s

        1. What was the sticking point? Who has to keep Trenton?

  6. How about arguing against this outrage obliquely. Argue that apps like Lyft and Uber reduce the incidence of dui by a significant amount.

    1. Well if we pass laws against driving drunk, people will obey them.

      /Beto, the drunk driver.

    2. Or the carbon impact on the planet.

    3. How about arguing that vaping reduces smoking?

    4. Prostitution reduces rape.

  7. The trucking industry has also deemed them too restrictive, arguing that they effectively make it impossible for motor-carrier companies to contract with owner-operator truckers.

    Feature, not bug. Having everyone work for a small group of highly centralized organizations is the best way to control them.

    1. This right here is the obvious answer – the state would much rather hit Uber for one single tax bill than try to chase down a thousand Uber drivers who almost certainly are not paying their fair share.* If the state had their way, we’d all work for the state where they get first dibs on our paychecks.

      *Obviously, “fair” share in the medieval sense of an objectively just price rather than in the enlightened sense of “whatever a willing buyer and a willing seller agree to” since the IRS has never once asked me how much I’d consider to be my fair share but simply told me what price I was required to pay lest I have large men with guns and badges showing up at my door “requesting” my “voluntary contribution”.

  8. “It’s not just the gig economy that is balking at these new regulations. The trucking industry has also deemed them too restrictive, arguing that they effectively make it impossible for motor-carrier companies to contract with owner-operator truckers.”
    This is a huge issue in the trucking world and interstate commerce. Every commercial vehicle must, by federal law, operate under a carrier with government granted authority. A truck owner can either get his own authority or lease his truck or trucks to an existing carrier. For a small business leasing to a carrier makes a lot of sense. Trucking is a highly regulated industry that requires ridiculous record keeping to satisfy Fedgov. Large carriers employ thousands of people for this purpose. They are also in a position to negotiate significant fuel and insurance discounts. Just to be clear, carriers don’t lease drivers, they lease trucks. The driver of the truck can be the owner or a different individual. Either way they are employed by the owner of the truck not the carrier. A one man owner/operator can easily spend hundreds of thousands of dollars on equipment. Many are organized as S corps. They file schedule Cs and pay pay self employment taxes. They buy their own disability and health insurance. They are not employees by any measure except California law. They are contracted into a mutually beneficial business relationship. Carriers are currently cancelling truck leases with owner/operators and will in NJ if this legislation passes. As this involves interstate commerce these statutes will ultimately be challenged in the federal courts which will take years to resolve. In the meantime a whole lot of small businesses will be bankrupted.

  9. “Critics warn the state is threatening the flexible work arrangements preferred by many workers.”

    Like the Progressives really care what the workers want. They’ll tell you what insurance is best for you, what education is best for you, what housing is best for you, etc., etc., ad nauseum.

  10. arge carriers employ thousands of people for this purpose. They are also in a position to negotiate significant fuel and insurance discounts. Just to be clear, carriers don’t lease drivers, they lease trucks. The driver of the truck can be the owner or a different individual. Either way they are employed by the owner of the truck not the carrier.

  11. Its also about taxes. Independent contractors get to write off business expenses and pay attention to political winds that cost them money.

    Less taxes.

    1. All that BS over a bridge. And I drive on roads that look like they’ve been shelled by artillery.

      Except the AC Expressway, which is a toll road. I wonder if there’s some kind of correlation there.

  12. JFC. Democrats truly are despicable retards. Treasonous even as far as I’m concerned. The Mueller, Kavanaugh and impeachment circuses are enough for me to conclude this.

    Anyway.

    They want to control EVERYTHING.

    Leave fricken people and workers alone already you assholes.

    Just awful. Every time we read a stupid idea that hurts people there’s always a letter ‘D’ next to it and usually from California and NJ.

    And in Canada, we have Ontario and Quebec who play that part.

  13. I am making 10,000 Dollar at home own laptop .Just do work online 4 to 6 hour proparly . so i make my family happy and u can do

    …….. Read More

    1. But does your employer classify you as an employee, or independent contractor?

    2. Are you an editor for Reason?

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