January 6, 2020
To: Members of the New Jersey State Assembly
From: Americans for Tax Reform
Re: Reject “ABC Test” definition for Independent Contractors, A5936, S4204.
Dear Assembly Member,
On behalf of Americans for Tax Reform, and our supporters across New Jersey, I urge you to reject AB5936 and S4204. These bills would make the “ABC Test” the standard for defining what constitutes an independent contractor. The consequences, intended or otherwise, would destroy work opportunities for many New Jerseyans – killing jobs, hampering emerging 21st Century industries, and forcing more people to flee the state.
The Department of Labor’s (DoL) decision to switch to the “ABC Test” alone to determine what is an employee versus an independent contractor is a mistake that should be reversed, not enshrined in law. The ABC Test is overly broad. It turns independent contractors who like their working arrangements, and determine where and when they work, into employees. Meanwhile the IRS uses the 20-Factor test which is more sensible.
By drastically increasing the cost of hiring these workers, this policy will kill jobs in New Jersey, as it has in California following that state’s passage of Assembly Bill 5 (AB 5). Even before AB 5 goes into effect in January, companies are cutting jobs. Just one high profile example is Vox Media which announced it is dropping 200 California-based writers. The American Society for Journalists and Authors (ASJA) filed a lawsuit against California on December 17, alleging that AB5 is unconstitutional due to its mishandling of free speech, freedom of the press, and equal protection under the law.
The disastrous consequences don’t stop there. The ABC Test undermines the franchise business model by making individual franchisee workers employees of the national franchisor. This would risk New Jersey’s more than 17,000 franchise businesses, the $7 billion they pay their workers, and the nearly $12 billion the industry contributes to the state’s economy.
An ABC Test is a direct attack on these businesses and workers as franchisors must maintain standards for franchises and have some control and influence over operations, which relates to Part A of the test. Many also have flagship stores which, under Part B of the test, puts them in the same ‘usual course of business’ as a franchisee.
If ridesharing companies are the target, that is also misguided. More than half of drivers work less than 12 hours a week, and under 20 percent drive for over 30 hours a week. The majority of drivers clearly are not full-time employees (The Value of Flexible Work: Evidence from Uber Drivers, UCLA/Yale, 2017). Truck drivers are also impacted. The ABC Test makes a U.S. state more like a foreign country for independent truckers.
These are just a few examples, there are many more contractors and businesses that will suffer, especially given how the economy has changed in the digital age. It is New Jersey’s citizens that will pay the highest price, but government will continue to hurt itself with policies like this that continue to shrink the tax base by driving people to leave for freer states with stronger economies.
We urge you to stand up for New Jersey’s taxpayers and reject S4204/A5936.
President, Americans for Tax Reform