justiceI’m back with news of a relatively big decision today from the Connecticut Supreme Court.

In the decision, the Court clarified an important question that the Connecticut Department of Labor had been pushing hard.  It will be welcome news for businesses in the state.

The issue was this: If an independent contractor (and his or her business) works ONLY with one company, can that person still be an independent contractor?

The Court said yes, that person CAN be. But it is important to note that it does not mean that the person will ALWAYS be an independent contractor. Instead, the court will continue to apply the ABC test — balancing several factors. (I’ve discussed the test in a prior post here.)

The case, Southwest Appraisal Group v. Administrator, Unemployment Compensation Act can be downloaded here.  Note that it will not be “officially released” until March 21, 2017.

The only issue in the case was whether the putative employee was “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.”

How to make that determination? By looking at the “totality of the circumstances” which also include another series of tests.

Here, the court at least is helpful in setting up what those factors are.   According to the Court, “factors to consider in evaluating the totality of the circumstances under part
C include:

  1. the existence of state licensure or specialized skills;
  2. whether the putative employee holds himself or herself out as an independent business through the existence of business cards, printed invoices, or advertising;
  3. the existence of a place of business separate from that of the putative employer;
  4. the putative employee’s capital investment in the independent business, such as vehicles and equipment;
  5. whether the putative employee manages risk byandling his or her own liability insurance;
  6. whether services are performed under the individual’s own name as opposed to the putative employer;
  7. whether the putative employee employs or subcontracts others;
  8. whether the putative employee has a saleable business or going concern with the existence of an established clientele;
  9. whether the individual performs services for more than one entity;
  10. and whether the performance of services affects the goodwill of the putative employee rather than the employer.

The court does add some additional guidance here noting that, “We emphasize that particular caution is necessary in considering the relative size or success of the putative employee’s otherwise independent business in connection with the totality of the circumstances analysis under part C.”

This is a big decision for employers who also use independent contractors.  Businesses should again review their relationships with these independent contractors to try to satisfy as many of the factors outlined above.

starrAs I return from some time off, my colleagues, Gary Starr and Chris Engler, have dug a bit deeper into the Connecticut Supreme Court decision from last week and issued this alert which we have also sent to clients. 

A deeply divided Connecticut Supreme Court recently issued a long-awaited decision, Standard Oil v. Administrator, regarding who is an independent contractor.  The reason this is significant is that companies that utilize the services of independent contractors are not responsible for, among other taxes, unemployment compensation contributions.  The Board of Review of the Employment Security Appeals Division has long interpreted the statute liberally and in this case concluded that the first two prongs of the “ABC” test required that the workers be treated as employees.  The Connecticut Supreme Court overturned that ruling, finding that the workers were indeed independent contractors.

(For background on the cases, see my prior posts here and here.)

The ABC test requires a company seeking an exemption from the tax to meet all aspects of the statute.

  • Part A focuses on the company’s direction and control over the workers.
  • Part B looks at whether the work was performed at the company’s place of business or whether the work performed is integral to the company’s business.
  • Part C, which was not at issue in the case, is focused on whether during and after providing services to the company, the independent contractor held himself out as offering the same services to others and has continued in the business of providing the same services.

Installers/technicians performed installation and repair work on oil furnaces and security systems that were sold by Standard Oil.  Standard Oil treated them as independent contractors.

The Connecticut Supreme Court found that the installers/technicians owned their own tools and vehicles, were licensed and certified, and were not supervised at their worksites by a representative of Standard Oil.  The work of the installers/technicians was not inspected by the company, either during or after the work.  The installers/inspectors were allowed to hire their own assistants.  The installers/technicians were free to accept or reject any assignment without adverse consequences and determined when they were available to work, but once they accepted an assignment, they had to perform the work within the time frame set by the customer and the company.  The installers/technicians performed the same work as part of their own businesses.  The company provided no employee benefits.  The installers/technicians were not required to be trained by the company nor were they required to display the company’s logo on their clothing or vehicles.  They were not paid by the hour.  Each signed an independent contractor agreement.  Based on these factors the Court concluded that the company satisfied the exemption under Part A.

There was a significant dispute between the majority and dissent opinions on whether Part B was satisfied.

The focus of the dispute and the critical factor was whether the work was performed at the company’s “place of business.”  This was a matter of statutory interpretation that involved analyzing the plain words, examining the language in the context of the broader statute, and reviewing the legislative history and case law from other states.

The majority’s ultimate conclusion was that “the meaning of ‘places of business’ in the present context should not be extended to the homes in which the installers/technicians worked, unaccompanied by the [company’s] employees and without . . . supervision.”  Thus, the company satisfied the criteria for the exemption under Part B.

This decision is welcome news for companies that use independent contractors.

But while there is euphoria in the ultimate decision, it is important to realize that Part C was not at issue in the case, but may be for other companies who use independent contractors.

Additionally, the Department of Labor may seek to have the statute amended to reverse this decision and to compel companies to pay into the unemployment compensation trust fund.

For companies who use independent contractors it is critical to obtain and follow legal advice to make sure such relationships can hold up under scrutiny of the ABC test, while also recognizing that federal agencies use other criteria in determining whether the worker is an employee or independent contractor.

Late this morning, the Connecticut Supreme Court released one of its most important decisions on employment law in years. I’ve been talking about it prior posts but its decision is a welcome surprise for employers who feared the worst. 

Because I’m out of the office for a few days, I’ve asked my colleague Chris Engler to give a brief recap.  My thanks to him.   We will have more in the upcoming days. 

The long-awaited decision in Standard Oil v. Administrator, Unemployment Compensation has arrived, and it brings good news for employers.

As you might recall, the Board of Review of the Employment Security Appeals Division had found that certain workers were employees of Standard Oil instead of independent contractors. The Board of Review’s analysis concluded that all three prongs of the ABC test rendered the workers to be employees.

The Connecticut Supreme Court has disagreed. Regarding part A, which focuses on the employer’s direction and control over the workers, the Court relied on the fact that the workers owned their own tools and vehicles, were independent licensed and certified, and were not supervised at their worksites by a representative of Standard Oil. As the Court further noted, “the installers/technicians were free to accept or reject any assignment offered to them without adverse consequences.”

Turning to part B of the test, which looks at whether the work was performed at the employer’s place of business, the Court looked at the case law from numerous states to guide its analysis. Its ultimate conclusion was that “the meaning of ‘places of business’ in the present context should not be extended to the homes in which the installers/technicians worked, unaccompanied by the plaintiff’s employees and without the plaintiff’s supervision.” (The “plaintiff” here was Standard Oil, the employer.) The Court specifically stated its goal of avoiding a broad interpretation of this part of the ABC test.

This decision is pleasant news for employers, especially those who use independent contractors to visit and service customers’ sites. It also suggests that the Supreme Court is taking a firmer stance against the Employment Security Division’s broad interpretations of who is eligible for unemployment benefits.

Employers who use independent contractors should breathe a sigh of relief.  But employers who use them should be sure to follow legal advice to make sure the relationships can hold up under court scrutiny

Governor Malloy with current CTDOL Commissioner Sharon Palmer

You’ve no doubt heard lots about how the U.S. Department of Labor is cracking down on independent contractors.  I’ve recapped it before and my former colleague, Jonathan Orleans, has a new post regarding Uber & electricians.

But in my view, there is a larger, more important battle now being fought in Connecticut and you may not be aware of it.  I touched on it briefly in a post in July but it’s worth digging a little deeper.  Disappointingly, I have not seen anything written about this in the press (legal or mainstream).

A case recently transferred to the Connecticut Supreme Court docket threatens to cause lots of havoc to company usage of independent contractors in Connecticut. The Connecticut Department of Labor has taken an aggressive stance in the case which is leading to this big battle.

The case is Standard Oil of Connecticut v. Administrator, Unemployment Compensation Act and is awaiting oral argument.  You can download the state’s brief here and the employer’s brief here.  The employer’s reply brief is also here.

The employer (Standard Oil) argues in the case that it uses contractors (called “installers/technicians”) to install heating oil and alarm systems and repair and service heating systems at times of peak demand.  The state reclassified the installers/technicians as employees and assessed taxes and interest.  At issue is the application of the ABC Test which is used in Connecticut to determine if these people are employees or independent contractors.

As explained by the CTDOL:

The ABC Test applies three factors (A, B, and C) for determining a worker’s employment status. To be considered an “independent contractor,” an individual must meet all three of the following factors:
A. The individual must be free from direction and control (work independently) in connection with the performance of the service, both under his or her contract of hire and in fact;
B. The individual’s service must be performed either outside the usual course of business of the employer or outside all the employer’s places of business; and
C. The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed

In the Standard Oil case, the employer is challenging the findings on various elements of this test. One of them – Part B , the “places of business” — is potentially far-reaching, according to the briefs filed in the case.  The issue is whether the customers’ homes are “places of business”; if they are, then the consultant cannot be said to be performing services “outside” the employer’s places of business.  The employer argued that viewing customers’ homes as places of business “does nothing to further the Act’s purpose and its practical implications are damning to Connecticut industry….”

Indeed, the employer argues that “it will be impossible for [the employer]-or any Connecticut business–to ever utilize the services of an independent contractor.”

Continue Reading The Real Battle over Independent Contractors and the ABC Test In Connecticut

Time to find your happy place.
Time to find your happy place.

Whatever happened to summer vacation? You remember, that downtime, when nothing much happened?

First, there were new proposed OT rules. Then, word came out EARLY (I got an alert at 6a!) today that the U.S. Department of Labor issued new “guidance” that will try to limit the misclassification of employees as indpendent contractors.

The goal is nothing less than ensuring that most of these workers qualify as employees under the federal Fair Labor Standards Act.

Here’s the key quote:

In sum, most workers are employees under the FLSA’s broad definitions… The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.

It states elsewhere:

This Administrator’s Interpretation first discusses the pertinent FLSA definitions and the breadth of employment relationships covered by the FLSA. When determining whether a worker is an employee or independent contractor, the application of the economic realities factors should be guided by the FLSA’s statutory directive that the scope of the employment relationship is very broad. This Administrator’s Interpretation then addresses each of the factors, providing citations to case law and examples. All of the factors must be considered in each case, and no one factor (particularly the control factor) is determinative of whether a worker is an employee. Moreover, the factors themselves should not be applied in a mechanical fashion, but with an understanding that the factors are indicators of the broader concept of economic dependence. Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor). The factors are a guide to make this ultimate determination of economic dependence or independence.

I’ve talked about the economic realities test before.  This not a new issue.

In fact, the USDOL had a fact sheet in 2014 stating almost the exact same thing.

But the USDOL’s new “interpretation” is certainly going to force employers to take a new look at their relationships to determine whether independent contractors should be better classified as employees.  And it’s going to raise some questions on enforcement as well.

So, to remind you, what are those factors under the “economic realities” test?

  1. Is the work an integral part of the employer’s business?
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  3. How does the worker’s relative investment compare to the employer’s investment?
  4. Does the work performed require special skill and initiative?
  5. Is the relationship between the worker and the employer permanent or indefinite?
  6. What is the nature and degree of the employer’s control?

But, and here’s where we all need to take a deep breath, this type of analysis isn’t all that new or surprising.  Courts have been using it for a while.  And it shouldn’t cause you to drop everything you’re doing today to look at this.

In fact, if you’re in Connecticut, I would actually suggest taking an even deeper breath because the issue is even more complicated than that.

There is a case now pending at the Connecticut Supreme Court — Standard Oil of Connecticut v. Administrator, Unemployment Compensation Act, that is examining whether certain contractors are “employees” under a different test — the ABC Test, and the proper application of that test under Connecticut’s own misclassification laws).

As explained by the CTDOL:

The ABC Test applies three factors (A, B, and C) for determining a worker’s employment status. To be considered an “independent contractor,” an individual must meet  all three of the following factors:
A. The individual must be free from direction and control (work independently) in  connection with the performance of the service, both under his or her contract of hire and in fact;
B. The individual’s service must be performed either outside the  usual course of business of the employer or outside all the employer’s places of business; and
C. The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed

Yes, in addition to the USDOL’s “Economic Realities” test, the Connecticut Department of Labor uses a different test for unemployment compensation purposes named the “ABC” test.

And don’t even get me started on the IRS’s “20 factor” test.

Are you in your happy place yet?

Maybe it’s time for that vacation after all.

Or, if you’re an employer, just take this latest news in stride. If you have independent contractors, the guidance is really just another reminder that the use of these contractors continues to be heavily disfavored by government agencies.

But if you’ve been reading this blog (see this post, for example, from 2010), you’ve known that, right?