The New Jersey Department of Labor and Workforce Development (NJDOL) recently adopted new regulations that provide further insight into the state’s “A-B-C test,” the legal framework New Jersey uses to determine whether a worker is an employee or an independent contractor. The regulations become operative on October 1, 2026, and cover a wide range of New Jersey employment laws relating to wages, unemployment compensation benefits, and earned sick leave. For healthcare and life sciences employers that engage contractors, providers, or other contingent workers in New Jersey, the time to review those arrangements is now.
Why Does Worker Classification Matter?
Whether a worker is an employee or an independent contractor, or whether a worker who should be considered an employee is misclassified as an independent contractor, can carry significant legal and financial consequences. Misclassified workers may be entitled to minimum wage and overtime protections, unemployment insurance, state disability benefits, earned sick leave, and a host of other statutory rights. Independent contractors are not. When an employer treats a worker as a contractor, but the law concludes that the person is actually an employee, the employer can face liability for back wages, unpaid tax and benefit fund contributions, interest, and penalties.
What Is the A-B-C Test?
The A-B-C test is how New Jersey determines whether a worker is an employee or an independent contractor for purposes of the laws outlined above. The starting presumption is that every worker is an employee. The employer must prove otherwise, and it must clear all three hurdles in the A-B-C test to do so.
First (A), the worker must be free from the employer’s control over how the work gets done. Second (B), the work the contractor performs must be either outside the employer’s normal line of business or physically performed somewhere other than the employer’s premises. Third (C), the contractor must be running an independent business that would exist even without the relationship with this particular employer. Failing any one of those three prongs means the worker is an employee under New Jersey law, regardless of what any contract says.
Key Changes Under New Jersey’s New A-B-C Test Regulations
The NJDOL frames the new rules as a clarification of existing law, synthesizing decades of New Jersey Supreme Court decisions rather than inventing new standards. What the regulations add, once effective, is specificity that will make enforcement more predictable and classification disputes harder to win.
On the control question, the regulations spell out nine factors to be considered, including whether the employer sets the worker’s hours, controls how the work is performed, requires the services to be done personally, fixes the rate of pay, or limits the worker’s ability to take on other clients. No single factor is dispositive. On the independent business question, the regulations are equally explicit about what does not count: a 1099 instead of a W-2, a professional license, a business registration, an insurance certificate, and a contract that labels someone a contractor. None of these is sufficient on its own. What is actually examined is whether the worker has a genuinely viable, independent business that would survive the end of the relationship with the employer.
What This Means for Healthcare and Life Sciences Employers
The practical starting point for any employer is a candid look at how each contractor relationship actually operates, not how the contract describes it. The A-B-C test is indifferent to labels and titles; what it measures is the reality of the working relationship.
Healthcare employers who enter into consulting or locum tenens relationships with physicians should focus on whether the physician works a regular schedule set by the facility, treats only the facility’s patients through the facility, and has no independent patient base or market presence of their own. A physician in that position may meet the formal requirements for independent contractor status but fail the underlying test, because the third prong requires a genuinely independent business that would exist with or without this particular engagement. The facility setting the schedule, supplying the patients, and controlling the clinical environment is providing what looks, functionally, like employment.
For pharmaceutical and device companies with field sales forces, the most important focus is on the control factor: who sets the territory, who provides the training, who furnishes the materials and equipment, and whether the representative is free to take on competing or parallel work. A representative operating exclusively for one manufacturer under a company-assigned territory with company-supplied tools is, as a practical matter, likely functioning as an employee regardless of the contract. The more the company’s operational structure depends on the representative following the company’s direction, the harder it is to sustain the contractor classification.
For home health agencies and life sciences companies with clinical research staff, the most pressing question is whether the protocols and supervision of those workers exist purely for regulatory compliance or whether they also serve to direct the details and manner of the work. The new rules carve out actions taken solely to comply with government regulations, but that protection is narrow. If a facility protocol tells a contractor not just what outcome is required but how to perform the service and when, it is likely functioning as direction regardless of whether a regulation prompted it.
The common thread across all of these relationships is that employers who have been getting the operational benefits of an employment relationship, consistent availability, directed work, organizational integration, without bearing the legal obligations that come with it face the most exposure under the framework.
Preparing for the October 1, 2026 Effective Date
Before October 1, 2026, employers should audit arrangements with all workers who are classified as independent contractors in New Jersey under the three prongs of the A-B-C test and the new regulations. Independent contractor agreements deserve a close look for provisions that suggest control, including exclusivity clauses, territory restrictions, noncompete covenants, and requirements that the work be done personally. The NJDOL has signaled that noncompete and nonsolicitation provisions in contractor agreements can be read as evidence of control. Agreements that were drafted unilaterally or give the employer the right to change the terms may not be given much weight if the classification is challenged. Where the audit reveals real uncertainty, proactive reclassification now is substantially less costly than an enforcement action or legal dispute later.
How Frier Levitt Can Help
Frier Levitt is a boutique law firm exclusively focused on the healthcare and life sciences industries. We represent hospitals, health systems, physician groups, home health agencies, pharmacies, pharmaceutical companies, and medical device manufacturers across New Jersey and nationally. We understand the workforce structures common to these sectors and what is at stake when a worker classification dispute triggers NJDOL enforcement, wage and hour liability, or ancillary regulatory exposure.
Frier Levitt can assist with auditing independent contractor classifications under the new rules, reviewing and restructuring contractor agreements, advising on reclassification decisions and their operational consequences, and responding to NJDOL inquiries and audits. Contact Frier Levitt today for a review of your New Jersey independent contractor arrangements before the October 1, 2026 operative date.
Senior Associate
General Counsel
