There are several facets to the question of whether a person who provides services to a business is an employee or an independent contractor. This classification issue affects whether tax withholding is applied to compensation, whether compensation must comply with wage and hour regulations (i.e., minimum wage and overtime rules), whether workers compensation coverage is required, and whether the person can be eligible for unemployment compensation.
To make things even more complicated, each of the federal and state agencies that administers these laws has its own criteria for determining employment or independent contractor status. In Connecticut, the test for determining who is an employee for unemployment compensation purposes has long been known as the ABC Test, because it has three components. Part A concerns direction and control over the worker, Part B concerns where the work is performed, and Part C concerns the type of work performed. In a recently published decision in the case of Standard Oil of Connecticut, Inc. v. Administrator, Unemployment Compensation Act, the Connecticut Supreme Court has handed down an employer-friendly interpretation of the ABC Test. (Find the opinion here, and the dissent here.)
The plaintiff was a home heating oil company which used independent contractors to install and service its customers’ heating systems. Part C was not at issue in the case, since both the company and the installers were engaged in the same trade. As to Part A, the company argued that it did not control or direct the work of the installers; as to Part B, the company argued that the work was performed outside of its business premises. The Unemployment Compensation Administrator ruled that the company controlled the work and that the homes of the customers where the work was performed could be considered the company’s place of business, so the workers were eligible for unemployment compensation benefits.
On appeal, the Supreme Court overruled the Administrator on both Part A and Part B of the Test. As to Part A, the Court held that the issue of control depended on who has the right to direct what shall be done, and when and how it shall be done. Since the homeowners were the company’s customers, it was the company that obtained the work, assigned it to the installers, set the price and approved the equipment. But the installers could accept or reject the assignments and determine the days of work, would not be supervised by the company in the performance of the work, and would use their own installation equipment. Since the installers exercised independent judgment and control over the execution of the work, it did not matter that the company acted as a conduit to arrange the appointments.
As to Part B, the Court ruled that the company’s place of business was not the homes of the residential customers. The homes were under the homeowners’ control, not the company’s control. Therefore the company prevailed under both Part A and Part B of the ABC Test, and the Court held that the installers were independent contractor.
This decision may have implications for Connecticut employers even beyond the area of unemployment compensation taxes and benefits. For example, the Workers Compensation Act deems a “principal employer” to be liable for injuries to an employee of a subcontractor if the subcontractor is working on premises under the principal employer’s control. Home improvement contractors who obtain work such as painting or roofing, but then subcontract to another business that actually does the work, may now be able to argue that since such residential premises have been deemed by the Supreme Court to be under the homeowners’ control, there is no principal employer liability. (The decision will not necessarily have an impact on the issue of who is an employee for purposes of wage and hour regulation; the US Department of Labor applies a different test that may lead to a different result.)
There was a dissent in the Standard Oil of Connecticut case, but employers can give the majority opinion an “A” on the ABC Test.