New Jersey's ABC Test Rule Is Now in Effect With No Trucking Carve-Out: What N.J.A.C. 12:11 Means for Owner-Operators and the Carriers That Lease Them On, and Why the Federal Preemption Defense Already Lost in the Third Circuit

New Jersey's independent contractor regulation took effect Thursday, October 1. The requests to stop it came from every direction: Senate President Nick Scutari, a Democrat, wrote to Gov. Mikie Sherrill on August 25 asking for a delay to July 1, 2027; the New Jersey Business & Industry Association and the state Chamber of Commerce asked for the same date in a joint letter in late September; Republican legislative leaders joined in. Sherrill let the date stand. The rule, N.J.A.C. 12:11, adopted by the Department of Labor and Workforce Development on May 5, spells out how the state will apply its ABC test for deciding who is an employee, and it contains no industry exemptions. Trucking asked for one and did not get it. 'There is a deep and very real fear among the logistics industry that these regulations were not fully thought out,' said David Greek, chair of the logistics group Circulate NJ. 'Today is not the end of this issue. It's just the beginning.'

What the rule is, and what it is not

The ABC test itself is old. New Jersey has used it for unemployment insurance since 1936, and the state Supreme Court extended it to wage claims in 2015. Under it, anyone paid for services is presumed to be an employee unless the company proves three things: (A) the worker is free from the company's control or direction, under the contract and in fact; (B) the work is either outside the usual course of the company's business or performed outside all of the company's places of business; and (C) the worker is customarily engaged in an independently established trade or business. The burden is entirely on the company, and missing one prong is enough to lose. What is new is a regulation that defines each prong and says what evidence counts. It applies to the Unemployment Compensation Law, the Temporary Disability Benefits Law, the Wage Payment Law, the Wage and Hour Law, the Earned Sick Leave Law and the Call Center Jobs Act.

The state's position is that nothing has changed. Acting Labor Commissioner Kevin Jarvis says the regulations do not alter the test or the department's enforcement policy and simply put decades of court and agency decisions into one place. Business groups read it differently. 'In New Jersey, this is now the legal default, and a virtually impossible standard to meet,' NJBIA president Michele Siekerka said. Independent-contractor attorney Richard Reibstein of Littler Mendelson, quoted by FreightWaves, wrote that the final version 'takes a more moderate regulatory approach' than the proposal but 'still carries out one of the most business-unfriendly tests for IC status in the country.' The proposal, issued under former Gov. Phil Murphy in 2025, drew more than 9,500 comments, most of them opposed. Sherrill froze it for 90 days when she took office in January, the department adopted a revised version in May, and the 120 days that followed were meant to give the Legislature time to act. No broad legislative fix was enacted.

Prong A: the compliance safe harbor trucking needed

The biggest change from the proposal matters more to trucking than to almost any other industry. The draft would have treated control exercised to comply with the law as ordinary employer control, given 'equal weight' to any other kind. A motor carrier is required by federal rules to control a great deal: hours of service, drug and alcohol testing, vehicle inspection, and, under the truth-in-leasing regulations, 'exclusive possession, control, and use' of leased equipment. The final rule reverses the draft. Actions a company takes 'solely to comply with federal, state, or local laws or regulations shall not, standing alone, be considered evidence of control or direction under Prong A.' The federal leasing rule itself, 49 CFR 376.12(c)(4), already says the exclusive-control clause is not meant to decide whether a driver is a contractor or an employee. Morgan Lewis, in its analysis of the rule, flags the two qualifiers: 'solely' and 'standing alone.' A requirement that goes beyond what the regulation demands, or compliance mixed with dispatcher control over how and when the work is done, can still count. The final rule also dropped a factor that would have treated a required company-controlled app as evidence of control.

Prong B: where trucking gets stuck

Prong B can be met two ways, and both are difficult for a carrier. The first is showing the work is outside the company's usual course of business. The rule defines that as any activity the company 'regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services.' A motor carrier generates revenue by moving freight; an owner-operator leased to it moves freight. That half of the prong is closed to most carriers. The second way is showing the work is performed outside all of the company's places of business. The rule defines those to include not only a physical plant such as an office, store or factory but any location where the company 'conducts an integral part of its business,' a definition that attorneys at Duane Morris describe as consistent with a 1991 New Jersey Supreme Court decision, Carpet Remnant Warehouse. The New Jersey Motor Truck Association's argument is that an owner-operator's work 'takes place on America's roads, not at a central office or depot.' Whether the department accepts the highway, the customer's dock or the port terminal as outside the carrier's places of business will be decided case by case; the department removed the industry-specific examples from the draft that commenters said targeted trucking and delivery, but it kept the definitions.

Prong C: an LLC and a 1099 are not enough

Under Prong C the department looks at whether the contractor's business would survive without this customer. The factors include the 'duration, strength, and viability' of the business independent of the company, the share of income that comes from the company compared with other sources, the contractor's investment in tools and equipment, and whether the contractor advertises and is available to the market. The rule says that holding a license, having more than one customer, registering a business entity, receiving a 1099 or carrying insurance is not, on its own, sufficient. It also discounts the written agreement when the company drafted it, the terms were not negotiable, or the company kept the right to change or end it unilaterally, a description that will sound familiar to anyone who has signed a carrier's standard lease. And the listed factors are not exhaustive: the department may consider others. Put together, the profile most exposed is the owner-operator who runs under one carrier's authority, takes nearly all revenue from that carrier and signed its standard contract. The strongest profile is the one with its own authority, several customers and a record of both.

Why the AB5 playbook does not work here

When California adopted its ABC test in AB5, the trucking industry's main defense was federal preemption: the Federal Aviation Administration Authorization Act bars states from enforcing laws 'related to a price, route, or service' of a motor carrier. That fight ran for years; the Ninth Circuit rejected the argument in 2021 and the Supreme Court declined to take the case in 2022. In New Jersey the question was answered even earlier. On January 29, 2019, in Bedoya v. American Eagle Express, the Third Circuit held that the FAAAA does not preempt New Jersey's ABC test, finding its effect on carrier prices, routes and services 'tenuous and insignificant.' The court distinguished a First Circuit ruling that struck the Massachusetts version of Prong B: Massachusetts offers only the usual-course-of-business route, which a delivery company can never meet, while New Jersey adds the places-of-business alternative, so it remains possible for a carrier's drivers to be contractors. The Third Circuit covers New Jersey, Pennsylvania and Delaware. For a carrier hoping a federal judge will switch the rule off for trucking, that precedent is the starting point.

That leaves three paths, none quick. Concurrent resolutions declaring the rule inconsistent with legislative intent, ACR73 and SCR62, have been introduced in the Assembly and Senate, and lawmakers have taken up bills protecting individual professions such as amateur sports officials, a pattern Siekerka criticized as a system where 'those with the resources and access to secure a legislative exemption may be protected' and everyone else is not. Morgan Lewis said in May it expected industry groups to challenge the rule's validity in court. And each carrier can make its own case on the facts, prong by prong, when an audit or a claim arrives.

What misclassification costs

New Jersey built its enforcement tools before it wrote the rule. Under laws enacted in 2020 and 2021, the department can assess unpaid unemployment and disability contributions with interest and penalties, impose a misclassification penalty of up to $250 per misclassified worker for a first violation and up to $1,000 per worker for later ones, and order the company to pay the worker up to 5 percent of the worker's gross earnings over the past 12 months. It can issue stop-work orders, and operating in violation of one carries a civil penalty of $5,000 a day. State agencies can share information and run joint investigations. For the driver, reclassification brings minimum wage and overtime rules, earned sick leave, unemployment and disability coverage. It can also end the contract. Critics point to a 2024 Mercatus Center study of California's AB5, cited by New Jersey 101.5, which found self-employment fell 10.5 percent on average in affected occupations and overall employment 4.4 percent, with no significant rise in traditional employment.

Who is covered

Opponents estimate about 1.7 million New Jerseyans earn at least some income from independent work; that is a count of who could be touched, not of who will be reclassified. In trucking the concentration is around the Port of New York and New Jersey, where drayage has long relied on owner-operators. And the reach is not limited to companies headquartered in the state. Reibstein wrote in September that the regulation 'also impacts companies operating on a nationwide basis that engage any New Jersey workers who perform services from their home offices or other business locations in New Jersey.' A carrier based elsewhere with New Jersey-based contractors should not assume it is outside the rule.

New Jersey says it has only written down what the law already was. For carriers and the owner-operators leased to them, the practical change is that the state's reading is now in the code, with definitions an auditor can cite, and the one exemption trucking got is a sentence about regulatory compliance with two qualifiers attached. The federal courthouse door was closed in 2019. What happens next will be decided in Trenton and in individual audits.