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Over on my firm’s sister blog, the Employment Law Letter, my colleagues have a post this week about the issuance of final rule on Independent Contractors by the United States Department of Labor.

As they note, the Final Rule establishes “a six-factor test based on the economic reality of the worker and potential employer relationship and may have a substantial impact on a number of industries.”

On first glance, it seems to make some sense when trying to figure out if someone is an employee or independent contractor. After all, the new test will return to a “totality of the circumstances” analysis of the economic realities of the situation. (The new rule will be effective March 11, 2024.)

But looks can be deceiving.

The issue is that it only adds to the hodge-podge of tests both at a federal level and state level and the different analyses applied by various state labor and tax departments.

Back in 2019, I talked about the fact that in Connecticut, there are two separate tests — neither of which are the same as the new rule proposed by the USDOL.

For example, both the state Department of Revenue Services and the IRS have historically used a 20 factor test to determine if someone is an employee or independent contractor. The factors are used to determine if the service recipient has the right to control the service provider, not only as to the result to be accomplished but also as to the details and means by which that result is accomplished.

But the Connecticut Department of Labor uses a stricter three-part test for determining if a worker is an independent contractor, referred to as the “ABC Test”.

To qualify as an independent contractor under the ABC Test:

  • A. The worker must be free from control and direction in connection with the performance of the service (the “A Test”);
  • B. The service must be performed outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which such service is performed (the “B Test”); and
  • C. The worker must be customarily engaged in an independently established business of the same nature as that involved in the service performed (the “C Test”).

Now, layer the U.S. Department of Labor’s new six factor test and it all adds up to a series of questions for employers to consider.

For employers, it’s important to review the classification of any performing services as an “independent contractor” and seek legal guidance to ensure that you are following the appropriate tests.

There are now three tests employers need to pass; failure on any one of them can lead to unanticipated liability. Sharpen your pencils.