From JDSupra, Mary Gambardella, Lawrence Peikes, and Joshua Walls discuss the recent Connecticut Supreme Court case in which the court found that a worker who only had one client was an independent contractor. They write:
Indeed, “it is important to consider that the [independent contractor] exemption becomes meaningless if it does not exempt anything from the statutory provisions.” Thus, in applying the ABC Test, the Court “must balance preventing the use of sham independent contractor agreements to avoid unemployment insurance obligations against ‘hampering those who undertake to do business together as independent contracting parties, rather than as employer and employee,’ on a legitimate basis.” To strike this balance, one must assess the totality of the circumstances under Part C by accounting for numerous factors, including:
- The existence of state licensure or specialized skills;
- Whether the individual holds him/herself out as an independent business through business cards, printed invoices or advertising;
- Whether the individual has a place of business separate from the potential employer;
- The individual’s capital investment in his/her independent business;
- If the individual has his/her own liability insurance;
- If the individual performs services under his/her own name or the employer’s name;
- If the individual employs or subcontracts others;
- If the individual has a saleable business with established clientele;
- Whether the individual performs services for more than one entity; and
- Whether the performance of services affects the goodwill of the individual rather than the putative employer.
The existence of some or all of these factors can be used to satisfy Part C of the ABC Test, but no single factor is dispositive. “Giving improper primacy to [an individual’s work for other entities] risks ‘subjecting an employer unfairly to the decisions of the putative employee and an unpredictable hindsight review,’ without consideration of ‘the intent of the parties, the number of weekly hours the putative employee actually worked for the employer, or whether the putative employee even sought other work in the field.” It would also “have a chilling effect on businesses’ willingness to contract with otherwise legitimate small businesses with minimal client bases and revenues, such as those run as start-ups or by persons who are transitioning to retirement.” Thus, the Court held that performing services for multiple clients is not a prerequisite to meeting Part C of the ABC Test.
The Connecticut Supreme Court’s decision proves that the State does not intend to make the defense of an “independent contractor” classification any harder than it already is. Companies that hire independent contractors will nevertheless remain under the microscope and should be prepared to prove each element of the ABC Test, if necessary. In conducting a Part C analysis, it is imperative that all of the factors enumerated by the Court in Southwest be taken into account. Businesses should bear in mind the Connecticut Supreme Court’s cautionary note that, although not a litmus test, “evidence of the provision of services to third parties, or lack thereof, becomes more significant in proving independent contractor status in the context of cases lacking other indicia of a putative employee’s independent enterprise.”