A proposed rule by the New Jersey Department of Labor that would clarify how to distinguish employees from independent contractors is drawing resistance from the life insurance sector, which argues that the regulation would disrupt agent operations and limit consumer choice.
The proposed change would apply the ABC test to determine whether a worker qualifies as an independent contractor. Under this three-part standard, a worker must operate free from the control of the hiring entity, perform work outside the usual course of the hiring entity’s business, and be engaged in an independently established trade or occupation.
According to the department, the final criterion involves evaluating an agent’s reliance on a single life insurer and the stability of their independent business.
New Jersey Labor Commissioner Robert Asaro-Angelo (pictured above) said the intent of the rule is to provide clarity on classification and ensure workers receive the benefits they are entitled to under labor law.
“Not only would these new rules protect workers’ rights, but they would also ensure that bona fide independent contractors understand what makes them independent contractors, rather than employees, so that they can continue to operate with autonomy,” he said.
The rule is based on the labor department’s reading of the ABC test and reflects interpretations supported by state court rulings, including a 2022 decision by the New Jersey Supreme Court. In that case, the court encouraged the department to move forward with formal rulemaking to clarify worker status criteria.
The ruling reinforced the department's authority to issue rules under the ABC test, which presumes that workers are employees unless all three prongs of the test are satisfied. The court's opinion pointed to inconsistencies in enforcement and emphasized the need for consistent statewide application of the standard in industries where worker classification has long been contested.
The American Council of Life Insurers (ACLI) has expressed concern that the rule would lead to the reclassification of independent life insurance agents as employees. According to the group, this would limit agents’ ability to offer products from multiple insurers and reduce customization options for consumers.
Similar concerns have emerged in other jurisdictions. In a high-profile federal case involving American Family Insurance Co., a judge ruled that thousands of agents were employees rather than independent contractors.
The court cited the level of control the company exercised over agents’ schedules, branding, and client relationships as key factors in its decision.
“Our clients don’t need us to be employees,” said Tema Steele, a licensed insurance agent with New York Life, during a hearing on the rule.
“They value our ability to offer products from multiple companies, our availability outside normal business hours, and the personalized service we provide,” Steele said.
The New Jersey proposal also comes amid a broader regulatory climate focused on employment practices. The Federal Trade Commission has proposed a ban on non-compete clauses, a move that has drawn opposition from many insurance organizations.
Industry stakeholders argue that such restrictions, if implemented alongside reclassification efforts, could undercut the independence of agency owners and reduce flexibility in how insurance businesses are structured.
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