Employers in Connecticut received welcome news earlier this month when the Connecticut Supreme Court issued its decision in Standard Oil v. Administrator. The case involved an interpretation of the test set forth in the state’s independent contractor statute, C.G.S. Section 31-222(a)(1)(B)(ii), commonly known as the “ABC test.” This is the test that the Board of Review of the Employment Security Appeals Division has applied to determine whether a worker must be considered an employee or whether the worker can be treated as an independent contractor. Employers who want to be exempt from the state’s unemployment tax on those workers have to seek an exemption, and in order to qualify for that exemption, they must meet all three prongs of this test. The Board of Review has been interpreting this test liberally, with the result that most workers did not meet the test for independent contractor and had to be considered employees.
There are three parts to the ABC test. Part A of the test concerns whether the worker is free from the company’s direction and control in the performance of the service involved. Part B of the test is concerned with whether the work is performed at the company’s place of business, or, if not, whether it’s integral to the company’s operations. Part C focuses on whether during or after providing these services, the independent contractor holds himself out as offering the same services to others.
In Standard Oil, the company hired workers to perform installation and repair work on oil furnaces and security systems that were sold by Standard Oil and treated them as independent contractors. In its decision, the Connecticut Supreme Court overturned a decision of the Board of Review, which had ruled that the workers were employees. The court concluded that the company met the “A” prong because the workers owned their own tools and vehicles, were licensed and certified, and the company did not supervise them when they were working. The workers were allowed to hire their own assistants and could reject any assignment without adverse consequences, but if they did accept an assignment, they had to perform the work within a specific time frame. The company did not provide them with any benefits, and the installers/technicians were not required to display the company’s logo on their clothing and their vehicles. Each signed an independent contractor agreement.
There was more dispute over whether the company had met the “B” part of the test because of the definition of “place of business.” The court was deeply divided on this second issue but the majority concluded that the meaning of “place of business” should not be extended to the homes where the installers and technicians performed their work.
Connecticut employers should note that part “C” was not under consideration in this case, because the workers were operating their own businesses. In addition, there’s a possibility that the Department of Labor may ask the Connecticut legislature to reverse the decision and make the independent contractor test more difficult to meet, forcing companies to pay into the unemployment compensation trust fund for such workers. If they want to look for ways to do that, they need not look far: Massachusetts has one of the most rigorous independent contractor laws in the country. And remember that the Internal Revenue Service is looking hard at independent contractor relationships in an effort to ensure that companies aren’t using the relationship to avoid paying and withholding taxes. So despite this favorable decision, if you are inclined to try to use independent contractors in your business, you’d be well-advised to seek counsel from experienced labor and employment counsel to assist you in this determination.