New Jersey Finalizes Strict Gig Worker Classification Rule Following California's AB 5 Model

New Jersey's Department of Labor and Workforce Development finalized regulations this week that adopt California's strict ABC worker classification test, a move that will likely reclassify ride-hail and delivery platform workers as employees rather than independent contractors, according to a Reason analysis published Friday. The rule, completed under Governor Mikie Sherrill's administration, marks the first state to formally revive the controversial reclassification campaign since California passed Assembly Bill 5 in 2019.

The regulation represents a strategic shift in how states pursue gig worker reclassification. Rather than passing new legislation that invites industry pushback and exemption lobbying, New Jersey's approach relies on reinterpreting the state's existing ABC Test statute—which predates California's AB 5 by 80 years—through the administrative rule-making process. The department had initially included specific examples in proposed rule text identifying transportation network companies as relationships that would fail the test's requirements, but deleted those examples from the final version after public comments argued the agency was prejudging legal outcomes.

California's Model and Its Spread

The reclassification push began with a 2018 California Supreme Court decision that ruled delivery drivers had been misclassified as independent contractors and should be treated as full employees. The court applied a stringent version of the ABC Test, a three-pronged legal standard that determines worker classification status.

California codified that approach in Assembly Bill 5 the following year, extending the strict classification test to industries across the state. The law's aftermath demonstrated the policy's pitfalls: California ultimately exempted over 100 industries from AB 5's requirements, while gig companies successfully passed a 2020 ballot initiative carving out their own exemption. Research showed California experienced drops in overall employment and self-employment following AB 5's implementation.

Only Massachusetts joined California in adopting the strictest version of the ABC Test after 2019. Other states pursued alternative regulatory strategies, including Seattle and New York imposing high minimum wage mandates for gig workers, and Massachusetts, California, and Illinois passing laws allowing gig workers to unionize.

The ABC Test's Critical Prong

The ABC Test contains three requirements a company must meet to classify workers as independent contractors. Prong B—the most difficult to satisfy—requires that workers perform duties "outside the company's usual course of business" to maintain independent contractor status.

Under the strictest interpretations, this standard becomes nearly impossible for most companies to meet. A ride-hail company's usual course of business is providing transportation; drivers clearly perform work central to that function. Weaker versions of the test provide more flexibility in how courts and agencies interpret "usual course of business."

New Jersey's Department of Labor and Workforce Development maintains it is merely codifying interpretations from past state Supreme Court decisions, not importing California's approach. The department argues New Jersey's ABC Test existed in state law for 80 years before AB 5 passed, framing the new regulations as continuity rather than change.

New Jersey's Regulatory Approach

The rule-making process began under former Governor Phil Murphy but reached completion under current Governor Sherrill's administration, capping a multi-year campaign by the state against platforms like Uber and Lyft. New Jersey sued both companies in recent years for alleged worker misclassification; both cases ended in settlements despite the companies maintaining their drivers were properly classified as contractors.

The department's proposed regulations originally included explicit examples of contracting relationships that would fail prong B's requirements. One example specifically referenced transportation network companies—a clear signal that ride-hail and delivery platform workers would be reclassified under the finalized rule.

After commenters challenged the specificity of those examples as prejudging legal outcomes, the department removed them from the final rule text. The deletion may help the department defend the regulations against legal challenges, but the agency had already indicated its intended application to gig platforms.

What Happens Next

New Jersey's approach offers a blueprint for other states with existing ABC Test statutes to pursue reclassification through administrative interpretation rather than new legislation. This regulatory path avoids the public battles that accompany bills like AB 5, where industries mobilize lobbying campaigns for carve-outs and exemptions before laws even take effect.

Gig platforms operating in New Jersey will likely face a choice between reclassifying workers as employees—triggering obligations for unemployment insurance, workers' compensation, minimum wage compliance, and overtime pay—or mounting legal challenges arguing the regulations exceed the department's statutory authority or conflict with prior state court precedent. The deletion of specific examples from the final rule text may complicate those challenges by forcing plaintiffs to wait for enforcement actions before establishing standing.

Labor organizers and workers' rights advocates will watch whether other states with less stringent ABC Tests follow New Jersey's regulatory model. The approach could revive reclassification efforts that stalled after California's legislative strategy produced widespread exemptions and declining employment figures.