So many businesses rely on independent contractors to provide services to their customers. Home improvement contractors quickly come to mind. Businesses realize many benefits from using independent contractors, rather than employees. Not having to pay unemployment tax for the independent contractors is one huge benefit, and unemployment claims are usually when a business gets into trouble in this area.
Typically the law, and the Department of Labor’s (both federal and state) enforcement efforts frowns upon independent contractor relationships, and in recent years the agencies stepped up enforcement efforts against the practice. In 2011, the IRS even created a "get out of jail free" card for businesses, as an incentive for them to classify contractors as employees. Read about that here. Two decisions in the past year from the Connecticut Supreme Court have clarified Connecticut's rules governing independent contractors, and in both cases the court issued business-friendly decisions.
A quick primer. Connecticut courts have always applied the “ABC” test to determine whether an individual is an employee or truly an independent contractor. This test examines the extent to which the employee is free from the businesses’ direction and control (the “A”), whether the service the individual renders is performed outside the usual course of the business or outside the company’s place of business (the “B”), and whether the individual is customarily engaged in an “independently established trade, occupation, profession or business” that provides the same type of services performed for the company (the “C”).
These two recent cases, involving automobile appraisers and furnace installers, which you can read here and here, make it clear that Connecticut courts will look to the “totality of the circumstances” and that no single component of the ABC test controls. This means look at and consider all the facts.
For Part A, the absence of supervision or control by the business is important. You want, for example, contractors that can accept or reject assignments, use their own tools, and operate under written contracts requiring the contractors to exercise independent judgment and control over the work. And for Part B, an important consideration is whether the employing business exercised control over the location where the independent contractors perform their services. This part of the test can be met if the independent contractor goes to the employer’s customer’s homes to perform services, like a licensed plumber or electrician who uses his own tools, has his own independent business, and travels to the company’s customer’s homes to perform the services.
Finally, for Part C, the courts will look to whether and to what extent the independent contractor had an independent enterprise, even if the individual didn’t perform any services for any other business. (Think business cards, separate office, separate license and corporate entity). The U.S. Small Business Adminsitration has some helpful info here, and Connecticut's Secretary of State also helps individuals start businesses here. (Of course you can always go to Legal Zoom, but be careful - as I wrote about here.)
One has to wonder whether the Trump Administration will make a change to the federal side of worker classication as independent contractors. There has been some press about that already here and here.
Q4U – Do you think you truly have independent contractors? Or are they employees? You should examine all of the facts surrounding the relationship to maximize your confidence level and make necessary changes to those relationships to protect your business.