Last week, the New Jersey Department of Labor and Workforce Development (the “Department”) signaled its intention to start enforcing a previously unenforced statute that establishes draconian penalties for violations, even those made in good faith, of certain wage, benefit, and tax laws, concluding with the mandatory revocation of all of the employer’s licenses to operate in New Jersey after the third violation.
Covered Employers and Violations
The Department’s proposed rules mandate certain penalties for any employer – regardless of size or industry and including a successor company – that fails to meet recordkeeping and/or reporting requirements and whose failure is connected with unpaid wages, benefits, taxes, or other contributions required by state wage, benefit, and tax laws. The applicable laws include New Jersey’s Prevailing Wage Act, Wage Payment Law, Wage and Hour Law, Workers’ Compensation Law, Unemployment Compensation Law, Temporary Disability Law, and Gross Income Tax Act, family temporary disability leave law.
Importantly, an employer must both fail to keep records and fail to pay certain amounts to either its employees or the State for the Department to enforce these penalties. However, the Department does not require the violations to be factually or causally connected – for example, failing to pay overtime to an employee who was improperly classified as non-exempt and not having records for that same employee. Instead, the Department merely would require that the violations are “discovered during the same investigation, a contemporaneous or a near contemporaneous investigation.” Therefore, if the Department discovers one employee is missing records and another employee was not paid overtime, the provisions of these regulations would apply.
This regulation would apply not only to the original employer but also to any successor firms. The proposed regulations would establish a rebuttable presumption that an employer has established a “successor firm” if the companies meet at least two of the following: “(1) performing similar work within the same geographical area; (2) occupying the same premises; (3) having the same telephone or fax number; (4) having the same email address or internet website; (5) employing substantially the same workforce, administrative employees, or both; (6) utilizing the same tools, equipment, or facilities; (7) employing or engaging the services of any person or persons involving in the direction or control of the other; or (8) listing substantially the same work experience.” If a company is considered a “successor firm,” that “successor firm’s” first violation could actually be a second or third violation under the law. Therefore, employers cannot avoid the harsh penalties of noncompliance by establishing a successor firm.
Under this regulation, if the Department discovers qualifying violations, the Department would have to notify the employer of the violations and then conduct a follow-up audit of the employer within 12 months.
The follow-up audit would be mandatory and if the employer again has qualifying violations – these do not have to be the same as the original violations – the Department would have to schedule a second audit within 12 months. In addition, the Department would have the authority – after giving the employer notice and an opportunity to be heard – “to direct any appropriate agency to suspend any one or more licenses that are held by the employer.” The Department would also have the discretion, after reviewing a number of factors, to determine the length of the license suspension.
For purposes of these regulations, license would include any permit, certificate, approval, registration, charter, or similar form of authorization to do business in New Jersey. For example, the Department would be authorized to order suspension of a certificate of incorporation, Alcohol Beverage Control license, or any “form of permission to engage in a profession, trade, or occupation in New Jersey,” after discovery of a second violation.
If, following the second audit, there again are violations – again, the violations do not have to be connected to the previous audit violations – the Department would be required to direct appropriate agencies “to permanently revoke any one or more licenses that are held by the employer or successor firm.” Prior to revocation, the Department would have to give the employer notice and an opportunity to be heard before the Office of Administrative Law.
While the impetus of the statute itself is to punish employers who employ individuals “off the books,” and pay sub-minimum wages or fail to pay overtime, this regulatory update is likely meant to be a tool in the Department’s current “crackdown” on misclassification. Misclassification means both improperly classifying employees as independent contractors – leading to the failure to contribute to the Unemployment Compensation Fund – and improperly classifying non-exempt employees as exempt – leading to the failure to pay overtime.
Because the rules almost mirror statutory provisions, there is a chance the Department may begin enforcing these regulations prior to their adoption. It is in the best interest of employers to immediately conduct internal assessments, with the assistance of counsel, to determine, among other compliance issues, whether individuals are properly classified. While the Department has long considered whether an employer’s classification of an employee was done in good faith, these regulations do not give the Department similar discretion for a third violation. Therefore, employers must take all necessary steps to ensure compliance with all wage, benefit, and tax laws. Otherwise, noncompliant employers may find themselves unable to operate at all in the State.
To discuss how these requirements impact you, reach out to Nicole DeMuro.
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