Tag Archives: worker misclassification

Clarification on independent contractor classification for Connecticut employers

In a recent decision (Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act), the Connecticut Supreme Court has provided employers additional guidance on when an individual can be considered an independent contractor – this time in the context of an “independent contractor” working for only one company. Specifically, the Court held that an individual can be considered an independent contractor even if he or she provides services to only one employer.

Background

Southwest Appraisal Group is an automotive damage appraisal business that regularly contracts with independent appraisers for a flat fee.

Upon conducting an audit of Southwest Appraisal Group’s taxes, the Connecticut Unemployment Compensation Act Administrator found that Southwest had misclassified some individuals as independent contractors instead of classifying those individuals as employees. In making this determination, the auditor used the three-prong “ABC test,” which is the test Connecticut uses to determine whether a service provider is an employee or independent contractor.

In order to show that a worker is properly classified as an independent contractor in Connecticut, a company must be able to demonstrate all of the following:

  1. The worker is free from direction and control of the employer;
  2. The services the worker provides are outside the employer’s usual course and/or place of business; and
  3. The worker is customarily engaged in an independently established business of the same nature as the services performed.

Here, the auditor found (and, later, the trial court), that the workers were improperly classified as independent contractors because the company could not satisfy the third prong of the test because the workers in question did not perform work for any companies other than Southwest Appraisal Group during the relevant time period. The fact that workers each owned their own equipment, utilized registered business names, and had business cards with their own contact information and licenses did not change the determination.

Southwest Appraisal Group ultimately appealed the auditor’s finding to the Connecticut Supreme Court. The sole issue before the Court – Does the ABC Test require proof that a worker classified as an independent contractor perform services for multiple companies.

The Court held that evidence of the performance of services for third parties is not required to prove prong C of the ABC Test but, rather, is a single factor that may be considered under the totality of the circumstances analysis governing that inquiry.” In addition, the Court provided 10 factors that are taken into consideration when determining whether prong C is satisfied:

  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 by handling his or her own liability insurance;
  6. Whether services are performed under the individual’s own name as opposed to the name of 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; and
  10. Whether the performance of services affects the goodwill of the individual rather than the company for which he or she is performing services.

What Does This Mean for Connecticut Employers?

This case provides valuable guidance for employers who engage the services of independent contractors. It is recommended that Connecticut employers regularly audit their independent contractor relationships to ensure that the totality of the circumstances supports the classification of the worker as an independent contractor.

DOL Partnership regarding worker misclassification — 34 States and Counting

Thirty-five states have agreed to “team up” with the US Department of Labor to investigate worker misclassification. Is your state one of them?

In 2015, Department of Labor launched an initiative to combat the misclassification of employees as independent contractors. As a part of this initiative, the Department of Labor sought to partner with the state agencies and agree to share information and conduct joint investigations regarding independent contractor misclassification. To date, 35 states have entered into a memorandum of understanding regarding worker misclassification issues.

These states are:

  • Alabama
  • Alaska
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Florida
  • Hawaii
  • Idaho
  • Illinois
  • Iowa
  • Kentucky
  • Louisiana
  • Maryland
  • Massachusetts
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Hampshire
  • New Mexico
  • New York
  • North Carolina
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Dakota
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • Wisconsin
  • Wyoming

What does this mean for employers in these states?

Employers in the above-listed states should expect collaborative efforts between their state agencies and the Department of Labor during a investigation into potential employee misclassification as the state and the Department of Labor will share information. This could lead to simultaneous, multi-agency investigations into worker classification. It is recommended that companies have qualified legal counsel review any existing independent contractor arrangements. In addition, before entering into an independent contractor relationship, speak with an HR Professional or qualified legal counsel to verify that the worker truly is an independent contractor.