New Jersey’s proposed independent contractor rules will have a devastating impact on independent advisors in the state, the Financial Services Institute maintains.
Attorney Paul P. Josephson made the statement on behalf of FSI in a letter to the state’s Department of Labor and Workforce Development, which proposed the new rules this past spring.
FSI supports the state DOL’s goal of better informing employers on how to make appropriate decisions on classifications of workers, Josephson wrote. “However, the rules as proposed would destroy the independent financial advisor model and exceed NJDOL’s rulemaking authority. We oppose adoption of the proposed rules and urge NJDOL to abandon this rulemaking or repropose rules that conform with the law,” he added.
The U.S. has more than 500,000 independent contractors in the financial and insurance industries, including 160,000 independent financial advisors, Josephson said. In New Jersey alone, independent contractors with at least one employee own and operate approximately 2,323 financial and insurance services firms, he added.
The ABC Test
The proposed rules provide interpretation of New Jersey’s “ABC test,” a three-pronged test it uses to determine whether a worker is an employee. All three requirements of the test must be met for a worker not to be deemed an employee. The three requirements are:
The worker is free from the control and direction of the so-called employer.
The worker performs a service outside the usual course of business or all physical locations of the employer.
The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
The DOL says its proposed rules add further interpretation of what each of those requirements means and notes it relies heavily on New Jersey Supreme Court opinions in doing so.
Worker Freedom
For example, the proposed rules say in determining whether a worker is free from control of an employer, a number of factors may be considered, including:
Whether the individual is required to work any set hours or jobs.
Whether the putative employer has the right to control the details and means by which the services are performed by the individual.
Whether the services must be rendered by the individual personally.
Whether the putative employer negotiates for and acquires the work performed by the individual.
Whether the individual’s rate of pay is fixed by the putative employer.
Whether the individual bears any risk of loss for the work he or she performs.
Whether the individual is required to be on call, on standby, or otherwise available to perform services at set times determined by the putative employer, even if the individual does not actually perform services at such times,
Whether the putative employer limits the individual’s performance of services for other parties, such as by limiting the individual’s geographic area or potential clientele.
Whether the putative employer provides training to the individual.
Where Business is Conducted
Regarding the “B” test on where business is conducted, the proposed rule says an employer’s places of business can include the residence or business of the employer’s customer.
Independent Trade
For the “C” test on whether the worker is customarily involved in an independently established trade, occupation or business, the new rules propose these factors may be considered:
The duration, strength and viability of the individual’s business (independent of the putative employer).
The number of customers of the individual’s business and the volume of business from each respective customer.
The amount of remuneration the individual receives from the putative employer compared to the amount of remuneration the individual receives from others in the same industry.
The number of employees of the individual’s business.
The extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure and other resources.
Whether the individual sets their own rate of pay.
Whether the individual advertises, maintains a visible business location, and is available to work in the relevant market.
An Intrusion
“The NJDOL’s approach amounts to a paternalistic intrusion into the career choices and professional identity of financial advisors,” Josephson said. “Many of these professionals deliberately choose the independence of contractor status in order to retain flexibility, control over their client base, and autonomy in product offerings. By seeking to reclassify them through overbroad rules, the NJDOL is not protecting workers — it is dictating career paths and undermining individual free agency.”
The comment period for the proposed rules was scheduled to end August 6.
