Self-employment and side hustles will be harder to maintain in New Jersey after the state finalized its new restrictions on independent contractors.

The previous Phil Murphy administration proposed new restrictions on independent contractors in the state. Public outcry ensued. As New Jersey freelance leader Kim Kavin found in her analysis of the over 8,300 public comments, 99% of them opposed the new regulations. When Mikie Sherrill came into office, she paused the regulations. 

However, on May 5, 2026, the New Jersey Department of Labor (NJDOL) adopted final regulations after pausing them earlier this year. In a statement, Acting Labor Commissioner Kevin D. Jarvis claimed they “heard from New Jersey’s business community and workers — and we acted on it,” by removing provisions that “created uncertainty.” 

The state previously had an ABC test, but the new rules clarify the standard. Under this standard, a worker is presumed to be an employee. The hiring company or organization must prove all three of the following aspects of the test:

A) The worker is free from control or direction over the performance of services; 

B) The work performed is either outside the usual course of the business, or outside of all the places of business

C) The worker is customarily engaged in an independently established trade, occupation, profession or business. 

What This Means

The finalization of this rule spells troubling news for freelancers in the Garden State. We explained when the rule was proposed that the state’s interpretation of the independent contractor definition was opaque and complex in ways that would make it difficult for independent workers. Legal analysts viewed the regulation as an “existential threat” to independent contracting statewide.

The new administration made some changes to the original proposed rule, such as removing the specific examples of how the test should be applied. Still, we stand by concerns that this will lead to a loss of independent flexible work in the state.

Analysis by law firm Morgan Lewis concludes that the B prong will continue to be an issue:

Despite several substantive revisions, the final regulations retain much of the proposal’s underlying framework. The broad definition of “usual course of business” under Prong B—covering any activity the employer “regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services”—remains unchanged, as does the expansive definition of “places of business” as extending to locations where the enterprise “conducts an integral part of its business.” For industries where independent contractors perform services integral to the company’s revenue stream, Prong B will continue to present challenges.

Kim Kavin published an explanation on her Substack from one lawyer she spoke to about the final rules that points to rules that are an improvement but will still be destructive:

One lawyer I spoke with made an analogy that I think is easy for anyone to understand. He asked me to imagine a dog-walking service that said there was a 90% chance they would kill my dog.

“You wouldn’t hire that dog walker, right?”

Then he asked me to imagine the service said, “Hey, good news, we made changes and now there’s only a 25% chance we’ll kill your dog.”

You still wouldn’t hire that dog walker, right?

Nobody would. We would all take our business elsewhere to protect the dog.

This is akin to the position of companies trying to work with independent contractors in New Jersey based on this rulemaking, the attorney told me. 

…

The most predictable outcome, he added, is companies walking away from the independent contracting model to protect their business

The chilling of flexible independent contractor opportunities is likely to occur because it was the outcome in California when the state legislature passed its ABC test through AB5. Self-employment plummeted by 10%, and overall employment fell 4%.

Bottom Line

The new rules take effect on October 1, 2026. We’ll see what happens at that time, but we can expect it will not be good for many flexible workers, especially women who depend on flexible work opportunities due to other priorities such as caregiving.