Garden State Initiative Report: Independent Contractor Rules Threaten New Jersey’s Small Businesses and Jobs: Lessons from California’s Failed Approach

A new analysis from the Garden State Initiative warns that a proposed rule from the New Jersey Department of Labor could significantly restrict flexible work arrangements, threatening the livelihoods of thousands of freelancers, caregivers, and small business owners across the state.

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The report, Independent Contractor Rules Threaten New Jersey’s Small Businesses and Jobs: Lessons from California’s Failed Approach, examines the Department’s proposed expansion of the state’s “ABC test” for determining worker classification. The rule would reclassify many independent contractors as employees—limiting flexibility, raising costs, and reducing opportunities for families and employers alike.

Key Findings:

• Presumption of employment: The proposed rule broadens the definition of employer control, treating ordinary business practices—such as requiring insurance or using digital platforms—as evidence of control. It redefines a client’s home or a worker’s own vehicle as an employer’s place of business and dismisses traditional markers of independence such as professional licenses, 1099 forms, or multiple clients.
• A cautionary lesson from California: California’s Assembly Bill 5 (AB5), enacted in 2020, attempted similar reclassification and resulted in widespread job losses and confusion. Studies found that one in ten independent contractors lost work, and lawmakers were forced to carve out over 100 exemptions. The result was a patchwork system that hurt small businesses, workers, and consumers—an outcome GSI warns New Jersey risks repeating.
• Widespread opposition: More than 8,000 public comments were submitted on the proposed rule, with 99% opposed, signaling deep concern across industries.

Who Would Be Harmed:

The report finds that the rule would disproportionately affect “women and men with young children who rely on flexible hours,” retirees supplementing their income, and “immigrants and minorities, many who use gig work as a first step into the American workforce.” The rule would also harm “independent financial professionals” who rely on client trust and autonomy, as well as workers across diverse sectors—“writers, clergy, personal trainers, pharmacists, and more.”

Flawed Justification:

Governor Murphy’s Task Force on Misclassification “justified its recommendations by claiming that worker misclassification was rapidly increasing and costing the state millions in lost tax revenue.” However, as noted in the report, those claims rest on “outdated and mischaracterized studies,” including one that “cites a supposed 40% rise in ‘misclassification’ when the underlying data actually showed a 40% increase in independent contracting.”

Policy Recommendations:

The Garden State Initiative outlines three key policy solutions to strengthen worker protections without eliminating independence:

• Develop portable benefits that follow workers across jobs without triggering employee status;

• Target real abuse by focusing enforcement on genuine misclassification cases rather than legitimate independent professionals; and

• Encourage innovation in work models that preserve flexibility while expanding access to benefits.

The analysis concludes that New Jersey’s proposed rule would undermine economic freedom, increase costs, and limit opportunity—particularly for women, minorities, and younger workers striving to advance.

About the Study:

Independent Contractor Rules Threaten New Jersey’s Small Businesses and Jobs: Lessons from California’s Failed Approach provides a detailed analysis of the economic and social consequences of broad worker reclassification, urging policymakers to reject the proposal and instead pursue modern, flexible solutions that support both workers and businesses.