July 2025 Labor and Employment Law Update

Although developments at the federal level are getting most of the headlines, New Jersey employers should continue to monitor legislative developments coming out of Trenton since most federal law changes are not usurping or preempting state legislation.

First, at the federal level, given the Trump Administration’s emphasis on detention and deportation, a prudent step is to fine-tune your business’s compliance with the I-9 process. The Immigration Reform and Control Act (IRCA) requires that any person hired in or after November 1986 must provide documentary evidence of authorization to work in the U.S. As immigration law enforcement is stepped up, we anticipate various federal agencies will focus increasingly on workplaces to identify and detain persons who are working without authorization. To manage risks in this area (penalties increase depending on the number of violations), ensure that your I-9 forms are being completed properly, documentation is examined for authenticity, and the forms are being preserved in the event of an agency audit. If your business does not have a policy calling for the lawful destruction of documents, consider creating one, because the I-9 form does not have to be retained indefinitely after an employee separates.

You may recall that in November 2024 a federal judge in Texas vacated the U.S. Labor Department’s final rule that was designed to lift the salary requirements for overtime exempt status in three steps, one each in 2024, 2025, and 2027. The Labor Department appealed this decision but in April 2025 advised the Court of Appeals that it is reconsidering the final rule and asked the Court to place the appeal in abeyance. The Court agreed to do so and as a result, for now the minimum salary requirements for exempt status remain as they were, generally at $35,568 per year.

In another reversal, a current Labor Department Assistant Secretary has re-instated the Opinion Letter Program which allows employers to request an opinion letter explaining how the Labor Department would apply federal labor law under various fact scenarios, including wage-hour, employee benefits, and safety and health issues. This Program was abandoned by the Obama Administration under pressure from the plaintiffs’ bar.

New Jersey’s legislature refuses to be overshadowed by the federal government. Our State’s Pay and Benefit Transparency Act took effect on June 1, 2025 and applies to employers with at least 10 employees in New Jersey, regardless of whether the employer itself is physically located in New Jersey. The Act requires covered employers to disclose the hourly wage, a salary or salary range, and a general description of benefits and other compensation for which a newly hired employee will be eligible, if hired. These disclosures must be included in job postings and job advertisements, regardless of whether they are published internally (within the business) or externally (to the public). The Act also applies to promotional opportunities and requires that the opportunity be posted or announced to all employees working in the department in question before the promotion decision it made. An exception applies when the promotion is based on the employee’s years of experience or job performance.

Not yet in effect are proposed regulations promulgated in April 2025 by the N.J. Department of Labor and Workforce Development (“DOL”) that will codify New Jersey’s version of the ABC test which determines whether a service provider is an independent contractor or an employee of the business. The proposed regulations suggest they are merely explaining the test articulated by New Jersey courts over the past 30 years, but they do much more than that. In all events, the legal burden is on the business to establish the individual’s independent contractor status. Failing to do so, the business must treat the individual as an employee and manage a past liability for misclassifying the person as an independent contractor. The business must prove all three prongs of the ABC test to avoid a determination that the service provider is an employee of the business. Prong A requires the business to show not only that it does not control the service provider, but also that it has not reserved the right to control the individual’s performance. The DOL then lists nine factors as considerations for applying Prong A, including “whether the services must be rendered by the individual personally” and whether the business “limits the individual’s performance of services for other parties such as by limiting the individual’s geographic area or potential clientele.” The nine factors are neither dispositive nor exhaustive.

Prong B requires the business to prove that the services in question are either outside the usual course of business or the service is performed outside, away from the usual place of business. In essence, if the services are essential to the business and are performed at a usual place of the business, Prong B will dictate that the service provider is an employee.

The DOL lists seven factors to be considered in applying Prong C, which inquires whether the service provider is engaged in an independently established trade, occupation, profession, or business. The DOL will consider “the duration, strength, and viability of the individual’s business (independent of the putative employer)” and the number of customers the service provider has. The DOL clarifies that simply because the service provider has multiple clients does not equate to an independently established enterprise.

In addition, the commentary to the proposed regulations indicates that the DOL will not defer to an “agreement that labels the individual an independent contractor.”

The public comment period for the proposed regulations has been extended to August 6, 2025.

Another regulatory development that merits attention is a New Jersey Senate Bill (Senate Bill No. 4385) which, if enacted, would void many non-compete agreements that would otherwise be enforceable in a New Jersey court and would have retroactive effect. Under the Senate Bill, the only non-compete agreements that would be enforceable in New Jersey would be pre-existing agreements with senior executives - - persons in policy-making positions whose compensation is at least $151,164 annually. Even with these limitations, not all non-compete agreements with senior executives would be enforceable under this bill if they are too broad, are longer than 12 months in duration, or attempt to restrict the employee’s services outside New Jersey.

The New Jersey Senate Bill closely resembles the FTC’s final rule on non-compete agreements which was issued on May 7, 2024 and vacated or blocked by federal district courts in Texas and Florida in July and August 2024. The FTC appealed in the closing months of the Biden Administration to the Fifth and Eleventh Circuit Courts of Appeals, and is required to provide status reports to the Courts as to whether it will defend the Final Rule in early September 2025.

As these developments show, in 2025 there will be more changes to come, both in Washington and in Trenton. Should you have any questions, please contact Patrick W. McGovern, Esq. at 973.535.7129 or via email here, or any Partner in our firm’s Labor Law Practice Group.