Connecticut Independent Contractor Rules. July of regulatory interest in Connecticut. The Connecticut Department of Labor ( CTDOL ) has

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1 Connecticut Independent Contractor Rules July 2012 Overview The misclassification of employees as independent contractors has garnered a great deal of regulatory interest in Connecticut. The Connecticut Department of Labor ( CTDOL ) has recently taken a more aggressive approach toward misclassifications by visiting worksites and conducting audits, without waiting for a complaint to be filed. The CTDOL also signed an agreement on September 19, 2011 with the U.S. Department of Labor, including its Wage and Hour Division, Occupational Safety and Health Administration, and Employee Benefits Security Administration (collectively DOL ) permitting the two departments to work more closely together, cross-report violations, and coordinate enforcement efforts. Given the penalties involved, employers are strongly encouraged to make sure any person treated as an independent contractor meets all the various federal and state tests used in making such determinations. ABC Test Used by the Connecticut Department of Labor The CTDOL has jurisdiction over Connecticut s wage and hour, and unemployment compensation statutes. Employees are covered by these statutes while independent contractors are not. Therefore, the first step in any investigation often requires the CTDOL to determine if a worker is an employee. In doing so, the CTDOL uses the ABC Test. Conn. Gen. Stat (a)(1)(B)(ii). See also, Tianti, v. Comm. Of Labor Rel., 231 Conn. 690 (1995) (ABC test

2 applies to wage statutes); and Latimer v. Admin., Unemployment Compensation Act, 216 Conn. 237 (1990) (ABC test applies to unemployment compensation claims). For a worker to be considered an independent contractor, the worker must satisfy all three parts of the test; A, B and C. See Connecticut ABC Test Analysis. Under part A of the test, the worker must be free from direction and control in the performance of the service, both under the contract of hire and in fact. This is essentially the Darden common law right to control test, which is discussed more fully below. To measure compliance with part A, the CTDOL relies on the same 20 factor analysis used by the IRS. See the Federal section for more information on the IRS 20 factor test. These 20 factors are designed as guides, and the degree of importance of each factor varies depending on the specific situation. In some situations, certain factors may be irrelevant. Further guidance provided by CTDOL states that part A will not be met if the person hiring the worker retains the right to exercise direction and control, even if the right is not used. In addition, to meeting part A, part B of the test states that an employer claiming the worker is an independent contractor must prove EITHER the worker s services are performed outside the usual course of the employer s business, OR outside all of the employer s places of business. Finally, the employer must prove under part C of the test, that the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service being provided. An individual who forms a business in response to an offer of work as an independent contractor will not be considered to be customarily engaged or independently established under Part C. According to additional guidance from the CTDOL, factors that tend to favor independent contractor status under part C include, a business license, 2

3 business liability insurance, letterhead and cards, advertisements, client references, state sales tax registration, and a federal ID number. In essence, the ABC test combines the Darden common law right to control test, measured by the IRS 20 factor test, with two additional elements, parts B and C, and is therefore a more difficult test to pass. By passing the ABC test, the worker should automatically pass both the Darden right to control test and the IRS 20 factor test; however, since different agencies will assess compliance it is possible they may come to different conclusions with regard to passage of each test. Right to Control Test Used by the Connecticut Workers Compensation Commission The Connecticut Workers Compensation Commission uses a right to control test when determining worker status under the Connecticut Workers Compensation Act. Hanson v. Transportation General, Inc., 245 Conn. 613 (1998). While similar to the Darden common law right to control test discussed below, the criteria is stated somewhat differently. Specifically, [o]ne is an employee of another when he renders a service for the other and when what he agrees to do, or is directed to do, is subject to the will of the other in the mode and manner in which the service is to be done and in the means to be employed in its accomplishment as well as in the result to be attained. Kaliszewski v. Weathermaster Alsco Corp., 148 Conn. 624, 629 (1961). An independent contractor, on the other hand, is one who, exercising an independent employment, contracts to do a piece of work according to his own methods and without being subject to the control of his employer, except as to the result of his work. Chute v. Mobil Shipping & Transp. Co., 32 Conn. App. 16 (1993). The key factor in establishing employee status is thus the employer s right to control how and when the employee s work is done. Carrier v. Voisine, 2093 CRB (decided Jan. 11, 1996). 3

4 IRS Twenty Factor Test Used by the Connecticut Department of Revenue Services The Connecticut Department of Revenue Services, which oversees state tax matters, including withholding issues, relies on the IRS 20 factor test in determining employment status. Specifically, the provisions of the Internal Revenue Code and its applicable regulations with respect to the meaning of terms such as employer, employee, payroll period, and wages, have the same meaning for Connecticut income tax purposes, except as otherwise specifically provided in Part IX, or where such federal definitions are clearly inconsistent with and inapplicable to the provisions of such Part. Conn. Agencies Regs (b)-1(12). Darden Common Law Right to Control Test Used for Federal Discrimination Laws The Second Circuit Court of Appeals, which has jurisdiction in Connecticut, has stated that the Darden common law right to control test shall be used to determine whether a worker is an independent contractor or employee for purposes of federal discrimination law. Frankel v. Bally, Inc., 987 F.2d 86 (2d Cir. 1993). Employees are covered by those laws. Independent contractors are not. In reaching its decision, the Second Circuit relied on the U.S. Supreme Court s decision in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992), which found the common law right to control test governed the definition of employee in ERISA cases. Finding the statutory language in ERISA similar to that in Title VII and ADEA, the Second Circuit held the right to control test applies equally to those discrimination laws. The test outlined in Darden states, [i]n determining whether a hired party is an employee under the general common law of agency, we consider the hiring party s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the 4

5 location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party s discretion over when and how long to work; the method of payment; the hired party s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. Darden Common Law Right to Control Test Likely Used for State Discrimination Laws The Connecticut Fair Employment Practices Act ( CFEPA ) defines employee as any person employed by an employer, but shall not include any individual employed by such individual's parents, spouse or child, or in the domestic service of any person, Conn. Gen. Stat. 46a-51(9). At the present time, there are no cases that provide guidance on which test to use to determine employment status under CFEPA. In other instances, when left to interpret ambiguous terms, like employee, without state judicial guidance, Connecticut courts have generally followed the Second Circuit s lead. Craine v. Trinity College, 259 Conn. 625, 637 n.6 (2002). Therefore, Connecticut employers should use the Darden common law right to control test discussed above in determining employment status under CFEPA, until more definitive direction is available. For more information contact scott@schaffer-law.com or