Working Together

We have blogged before about the “ABC Test,” used in Connecticut to determine whether a worker is considered an employee for purposes of eligibility for unemployment compensation benefits. Most recently, my partner Michael LaVelle discussed a 2016 Connecticut Supreme Court decision, Standard Oil of Connecticut, Inc. v. Administrator, in which the Court held that workers who installed and serviced home heating systems were independent contractors rather than employees under the ABC test.  They exercised enough control over their own schedules and performance of the work to satisfy part “A” of the test, and the customers’ homes, where the work was performed, could not be considered the employer’s places of business, since they remained under the homeowners’ control, thus satisfying part “B.”

A case now awaiting argument at the Court addresses part “C” of the test, which was not at issue in the Standard Oil case.  Part C requires that a worker, to be classified as an independent contractor rather than an employee, “is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.”  In applying this test, the Connecticut Department of Labor examines such factors as whether the individual has established a business entity, has business cards or other marketing materials for the business, has a clientele that includes other customers in addition to the putative employer, employs others, performs services under the individual’s name rather than that of the putative employer, and faces the prospect of both profit and loss.

In Southwest Appraisal Group, LLC, v. Administrator, the Employment Security Board of Review concluded that licensed appraisers engaged by Southwest to provide auto damage appraisals to insurance companies were employees of Southwest, not contractors.  The Board found that they were not “customarily engaged” in an independent business or occupation because they did not perform similar services for other clients or customers during the time that they performed services for Southwest.  The Superior Court affirmed, and Southwest appealed.  The case has been fully briefed, but has not yet been scheduled for oral argument.

In the briefs the State argues, among other things, that its interpretation of the statutory test ensures that workers classified as contractors will be economically independent, in that they will not face unemployment and loss of all income from work if the relationship with a particular customer ends. Southwest argues that the statute has never been interpreted to require that in order to be considered a contractor, a worker must be actually performing services for others at the same time that he or she is performing services for the putative employer.  Southwest contends that imposing this allegedly new requirement will be damaging to the Connecticut economy.

Whatever one thinks about either the statutory interpretation argument or the potential economic consequences of a decision in either direction, it is worth noting that the State’s position is broadly consistent with the U.S. Department of Labor’s July 2015 Administrator’s Interpretation on “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors.”  That detailed guidance document on the question of whether workers are properly classified as employees or contractors for purposes of the Fair Labor Standards Act states that the issue of economic dependence is “the ultimate question.”  This is an area where different tests are used for different purposes – e.g. unemployment compensation, tax matters, the FLSA – and a more consistent set of standards would at least have the virtue of reducing uncertainty in classifying workers.  Connecticut employers who use independent contractors in their business operations should be awaiting a decision in the Southwest Appraisal Group case with interest.