Connecticut employers and small businesses often look to save money on payroll expenses by classifying individuals as independent contractors rather than employees. The practice, while not forbidden, is laden with risk. In order to compete, businesses in some industries decide to take that risk. Those companies that don’t take the risk, experience a hit to their profit margins. We’ve written about these issues before, here which will give you some background to follow along this post.
We now have another case from our Connecticut Supreme Court to add to our prior post that focuses on door-to-door vacuum cleaner salesmen. I didn’t even know they still existed; well they do, and those involved in this case were determined to be employees.
This case, called Kirby of Norwich v. Adm’r Unemployment Compensation Act, 328 Conn. 38 (2018) (you can read it here), got to the Connecticut Supreme Court the way many of them do. The company fought having to pay unemployment benefits, and to successfully avoid paying those benefits, the employer had to show that the individuals were independent contractors. The ABC test again ruled the day. Under the ABC test, the individual has to be free from the company’s control and direction, must perform the services outside the company’s usual course of business, and the individual must be “customarily engaged in an independently established trade, occupation, profession, or business” of a similar nature.
Here, the company, or employer, had no evidence that the workers sold vacuums for any other company or had some independently established trade. This harkens to the federal “economic realities” test which looks at whether or not the “economic” reality is that the workers rely on this one company to make a living.
So now this company is looking at penalties for un-withheld taxes, potential audits of its workers compensation coverage premiums and unemployment taxes. I hope its cost-benefit analysis was well-documented.
Independent contractor classification has been and will continue to be a hot-button issue. It is just smart to protect your business by taking a close look at your independent contractor agreements, and how the relationship with the individual workers actually works, to know your business’s risk. It will cost a lot less in the long run to take this look at your practices rather than getting involved in a costly legal battle over this issue. While the Department of Labor provides helpful information, click here for some, having a trust advisor will provide greater protection to your business.