Beginning July 13, 2010, New Jersey employers risk a business "death" penalty – the loss of their operating licenses – if they fail to comply with the State's wage, benefit and tax laws.

Under P.L. 2009, c. 194, signed into law by Acting Gov. Steven Sweeney and effective July 13, 2010, an employer may lose one or more of its business licenses or permits if: (1) it fails, for even one employee, to properly maintain and report records required under the New Jersey Prevailing Wage Act, the New Jersey State Wage and Hour Law, the Workers' Compensation Law, the Unemployment Compensation Law, the Temporary Disability Benefits Law, New Jersey's Paid Family Leave Act, New Jersey's Wage Payment Law, and the New Jersey Gross Income Tax Act (collectively, the "State Wage, Benefit and Tax Laws"); and (2) this failure results in the non-payment of wages, benefits, taxes or other required contributions.

Triggering The Penalty

Where the Commissioner of Labor and Workforce Development ("Commissioner") determines that an employer's deficient recordkeeping led to a failure to pay wages, benefits or taxes, the Commissioner will enforce the State Wage, Benefits and Tax Laws, and may also order an audit of the employer (including any successor firm) under the new law. Where the audit determines that the employer has continually failed in its recordkeeping and payment obligations,¹ the Commissioner may suspend one or more of the employer's operating licenses. To determine the length of suspension, the Commissioner will take into account a number of factors, including the duration of the violation; any prior misconduct; the role of the employer's directors, officers or principals in the violation; and the employer's good faith efforts to comply with the applicable requirements. Within 12 months of this initial suspension, the Commissioner will conduct a follow-up audit of the employer. Should this second audit establish any further violation, the Commissioner may permanently revoke any one of the employer's operating licenses or permits.

Employers who receive workers from employee leasing companies should remain particularly vigilant because the leasing company arrangement does not shield employers under the new law. Specifically, if the Commissioner determines that a violation has occurred and that it resulted from the client company providing incomplete, inaccurate, misleading or false information to the employee leasing company, it is the client company's license that will be suspended or revoked, not that of the leasing company.

Notification Obligations

The new law also requires employers to conspicuously post notice of its provisions, including the employer's obligation to accurately maintain and report records concerning wages, benefits, taxes and other required contributions. The employer must also provide each employee with a copy of the notice within 30 days after an approved form has been issued by the Commissioner or, if the employee is hired after its issuance, at the time the employee is hired.²

New Whistleblower Protections

In addition to increasing the severity of penalties, the new law extends anti-retaliation protections to employees who report violations of the Act. Specifically, the Act prohibits an employer from discharging or discriminating against employees who: (1) inquire or complain to their employer, the Commissioner or to their labor representative regarding possible violations of the new law or any other state wage, benefit or tax law; (2) institute or plan to institute any proceeding under the Act or any of the laws it covers; or (3) testify or are about to testify in such a proceeding. The employer may be subject to criminal penalties, including conviction of a disorderly person's offense and any applicable fines, for violating the retaliation provision. In addition, where the employee has been discharged in violation of the Act, the employer may be ordered to reinstate the employee with all lost wages and benefits, and pay his or her attorneys' fees, and punitive damages amounting to two times the lost wages and/or benefits.

Employers should take the time before this regulation becomes effective to ensure that their policies, practices and postings are in compliance with the State's Wage, Benefit and Tax Laws. They should also make sure that they have proper procedures in place to prevent retaliation against employees who fall under the whistleblower protections of this new law.

If you have any questions concerning this new law, how it will impact your business or what you can do to be prepared for it, please contact the authors of this Alert or the Reed Smith attorney with whom you regularly work.

1. Although "continual" failure is not defined in the current version of the Act, we anticipate that the Commissioner will publish guidelines more specifically defining this term.
2. As of the date of this Alert, the Commissioner has not yet published the approved general and/or individual notices.

Client Alert 2010-138