CT Supreme Court Clarifies ABC Test for Classifying Workers as Employees or Independent Contractors

See Southwest Appraisal Group LLV v Administrator, Unemployment Compensation Act.

On March 21, 2017, in a significant win for the CT business community, the State Supreme Court clarified the ABC test for independent contractor status.

In this case, the company contracted with independent appraisers to perform appraisals for a fee.  Three of these appraisers did not perform work for any other client.  In an audit, the CT Unemployment Administrator determined these three appraisers were not independent contractors and were in fact employees of Southwest. 

Southwest was assessed back taxes and upon Southwest's appeal to the superior court, the trial court agreed with the UC Administrator, saying that while the appraisers met the A and B portions of the ABC test, they did not meet part C because Southwest was their only client.

Under the ABC test for classifying workers as either an employee or independent contractor, a company must prove that an individual worker meets all three parts of the ABC test to classify the worker as an independent contractor:

A.  The worker must be free from direction and control in the performance of the work, both under contract of hire and in fact.  This one-size fits-all "20 question" part of the test is difficult to meet for specific types of businesses, such as residential contractors.  See our markup of the ABC Test that shows how it is so difficult for residential contractors.

B.  The worker's services must be performed either outside the usual course of the employer's business or outside all of the employer's places of business.  Of course, for residential contractors, if a home building site is considered by the UC Administrator to be one of the employer's places of business, then the B part of the test can never be satisfied and everyone who works on a site would be considered an employee.  This would be an absurd result.

C.  The worker must be "customarily engaged" in an "independently established" trade, occupation, profession or business of the same nature as the service being provided.  This is the part the trial court determined in Southwest Appraisal Group that the company failed because the workers did not work for multiple clients.

Upon appeal by Southwest to the State Supreme Court, the high Court reversed, ruling for Southwest.  The Court said that part C of the ABC test has a number of factors.  Whether a worker works for one client or several does not, on its own, determine the outcome.  It "is a single factor that may be considered under the totality of the circumstances ... ."

The Court outlined 10 factors to be considered under part C of the ABC test:

  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 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. Whether the performance of services affects the goodwill of the putative employee rather than the employer

As the Court concluded, "The degree to which a putative employee provides similar services for third parties cannot be considered in isolation ...."

Now, if only the legislature can clarify parts A and B for residential contractors ... (see our Wage & Hour, UC and Worker Classification page)

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