New Jersey Advisers Face ‘ABC’ Test on Independent Contractor Status

The New Jersey Department of Labor and Workforce Development adopted a final rule clarifying how the state applies its “ABC test” for determining whether a worker is an employee or an independent contractor, which could have implications for investment advisers, broker/dealers and other financial professionals operating under independent models. 

New Jersey’s rule, which was originally proposed in April 2025 and will take effect in October, provides guidance on how the state should determine a worker’s classification, using a three-part “ABC test”. A worker is considered independent if:  

• The worker is free from control or direction;  

• The work is done outside the firm’s usual course of business or locations; and  

• The worker operates an independently established business.    

State officials emphasized the regulation does not change the underlying legal standard, however, the formalization of how the ABC test is interpreted and enforced could make it more difficult for firms to classify advisers and broker/dealers as independent contractors, an outcome industry groups have long warned could disrupt distribution models and limit consumer access to financial advice. 

Industry Concerns Continue 

Despite the state’s assurances, financial services groups remain cautious about the rule’s potential impact. 

The Financial Services Institute released a statement saying the group was reviewing the final language but emphasized the importance of preserving the independent contractor model for financial advisers. 

“Independent financial advisers have chosen the independent contractor model, many switching from an employee-adviser model, for the freedom and flexibility to build their own business,” FSI President and CEO Dale Brown said in a statement, adding that his group is committed to protecting advisers’ ability to operate independently.   

Concerns from the industry are not new. In response to the proposed version of the rule, organizations such as the Insured Retirement Institute warned that applying the ABC test strictly could effectively reclassify many advisers and broker/dealers as employees.   

Critics argued that requirements proving work done is outside a firm’s core business and demonstrating the existence of an independently established business could be difficult for financial professionals to meet, given regulatory oversight and firm relationships. 

For wealth management firms and insurance distribution channels, the rule heightens scrutiny of long-standing independent models. 

Key clarifications in the final rule suggest that contracts, licensing and business registration alone will not determine independent status and working for multiple employers does not automatically mean a worker is independent. 

The New Jersey rule is not the only disagreement between regulators and financial professionals over worker classifications.  

The U.S. Department of Labor recently proposed replacing a Biden-era independent contractor rule with a revised version of a 2021 version, enacted during President Donald Trump’s first term. The new proposal, favored by financial professionals, would retain advisers’ independent contractor status, while the Biden-era rule would potentially reclassify independent financial advisers as employees.  

Employees, unlike independent contractors, are entitled under federal law to key protections such as minimum wage, overtime pay and workplace safety standards enforced by the Occupational Safety and Health Administration.