Contracts · Working with contractors
Contractor Agreements Built Around New Jersey’s ABC Test
In New Jersey, calling someone a contractor does not make them one. A good agreement describes a genuinely independent relationship, then handles scope, payment and ownership of the work so both sides know where they stand.
The starting point
The paperwork has to match the relationship
New Jersey applies the ABC test to decide whether a worker is an employee for unemployment, wage-payment and related purposes. A worker is presumed to be an employee unless the business can show all three parts of the test are met.
That presumption changes how an independent contractor agreement should be written. A document full of language about independence will not help if the business in fact sets the person's hours, supervises the work daily and treats them like any other staff member. Regulators and courts look past labels to how the work is actually performed. Penalties for misclassification were strengthened between 2019 and 2021 and can include unpaid contributions, wage claims and additional assessments.
What a well-drafted agreement can do is record a relationship that genuinely qualifies, set expectations that keep it that way, and deal with the commercial issues that matter in every engagement: what is being delivered, how and when it is paid for, and who owns the result. If you are still deciding whether a particular role should be a contractor at all, the article on contractor versus employee status walks through that question first.
The three-part test
What each part of the ABC test asks
The test comes from New Jersey's unemployment compensation law (N.J.S.A. 43:21-19(i)(6)) and is applied to several related employment statutes. Failing any one part generally means the worker is treated as an employee.
- A — Control. The individual has been and will continue to be free from control or direction over how the work is performed, both under the contract and in practice.
- B — Outside the usual business. The service is either outside the usual course of the company's business, or performed outside all of its places of business.
- C — Independent trade. The individual is customarily engaged in an independently established trade, occupation, profession or business.
Part B is where many arrangements struggle. A marketing agency hiring a freelance designer to do the same work its staff designers do may find that difficult to satisfy, whereas a retailer hiring an outside IT consultant is more likely to qualify. Each engagement is fact-specific, and the agreement cannot cure a relationship that fails the test.
What the agreement covers
Clauses every contractor agreement needs
Scope and deliverables
A description of the result to be delivered, not a list of daily tasks. Defining the output rather than the method supports the contractor's independence.
Payment terms
Fees per project, milestone or invoice, payment timing, expense reimbursement if any, and what happens to fees for work in progress if the engagement ends early.
Ownership of work product
An express assignment of copyrights, inventions and other rights in what the contractor creates. Without it, the contractor may own work you paid for.
Tools, schedule and location
Confirmation that the contractor supplies their own equipment, sets their own hours and may serve other clients, provided that is actually true.
Confidentiality
Protection for customer lists, pricing and other sensitive information, with a clear duty to return or destroy materials at the end. A standalone NDA may suit early discussions.
Insurance and taxes
The contractor's responsibility for its own taxes, licenses and insurance, and an indemnity if the contractor's work causes third-party claims.
Drafting signals
Language that helps and language that hurts
These examples show how wording can reflect independence or undermine it. None is decisive on its own; actual conduct always matters more.
| Supports contractor status | Suggests employment | Why it matters |
|---|---|---|
| Contractor decides how and when the work is done | Contractor must work set hours under a manager's direction | Control is the core of part A of the test |
| Paid per project or deliverable on invoice | Paid a regular salary through payroll-style schedules | Payment structure is a common indicator regulators examine |
| Contractor may hire helpers and serve other clients | Contractor must work exclusively for the company | Exclusivity weighs against an independently established business |
| Engagement ends when the project is complete | Open-ended relationship with no defined end | Indefinite engagements resemble employment |
| Contractor uses own equipment and workspace | Company supplies laptop, desk, email and title | Integration into the business points toward employee status |
How the firm helps
Putting a contractor relationship on paper
Describe the engagement
You explain the work, how it will be supervised, how long it will last and what you plan to pay. Paul flags any ABC-test concerns before drafting starts.
Draft or adapt
The firm prepares a new agreement or reworks your existing template so it fits the specific role rather than every role. It is one of several agreements covered by the firm's business contracts practice.
Align practice with paper
You get a short note on day-to-day habits that keep the relationship consistent with the agreement, such as avoiding schedules and supervision that resemble employment.
Questions & answers
Independent contractor agreements — questions owners ask
Does a signed independent contractor agreement prove someone is a contractor in New Jersey?
No. Under the ABC test, the worker is presumed to be an employee unless the business shows all three conditions are met, and authorities examine how the work is actually done. A good agreement is useful evidence and sets expectations, but it cannot turn an employment relationship into a contracting one by relabelling it.
Who owns the work an independent contractor creates?
Unless the agreement says otherwise, a contractor often retains copyright in what they create, even if you paid for it. The agreement should include a clear assignment of intellectual property rights to your business, plus a commitment to sign any further documents needed to confirm ownership. This is particularly important for software, designs and written content.
Can I require a contractor to sign a non-compete?
It is possible, but it raises two concerns. A broad non-compete can suggest the person is not running an independent business, which weakens the ABC analysis. It also faces the same reasonableness review as any restrictive covenant. Confidentiality and non-solicitation terms usually protect the business with less risk; the non-compete agreements page explains the standard.
What should a contractor agreement say about payment?
It should state the fee basis, when invoices are submitted, when payment is due and what happens if work is disputed. Tying payment to deliverables or milestones rather than hours worked usually fits a contracting relationship better. The agreement should also say who pays expenses and how unfinished work is paid for on early termination.
Your attorney
Paul H. Appel, Esq.
Every matter at the firm is handled personally by Paul — the same attorney reads the documents, gives the advice and negotiates on your behalf.
- Education
- Columbia Law School, Juris Doctor (1967)
- Experience
- 58+ years in commercial and business law
- Focus for this matter
- Drafting, reviewing and negotiating commercial agreements
- Office
- Freehold, NJ — serving Monmouth, Middlesex & Ocean Counties
Contact
Discuss Your Business Matter With Paul
Describe what the business is dealing with — a contract on your desk, a deal in progress, a dispute or a company you are about to form. You will hear back from the attorney who handles the work.
- Phone917-748-6124
- Office11 Crestwood Drive, Freehold, NJ 07728
- ConsultationsBy phone, video or in person by appointment
Start a conversation