A recent decision on the scope of the so-called ABC Test gives guidance to firms using independent contractors. In Tiger Home Inspection, Inc. v. Director of the Dept. of Unemployment Assistance, a Massachusetts appeals court reversed a district court decision and held that individuals performing inspections on behalf of Tiger were not employees but independent contractors. The district court decision had previously affirmed a finding by the state Department of Unemployment Assistance that an employment relationship, in fact, existed.
This page has written extensively on the three-prong test and its potentially wide-ranging impacts on the status of independent contractors. In Massachusetts, the ABC test operates similarly to those of other jurisdictions. A defendant is presumed to be an employer unless it can satisfy all three prongs of a three part test:
a) such individual has been and will continue to be free from control and direction in connection with the performance of such services, both under his contract for the performance of service and in fact; and
b) such service is performed either outside the usual course of business for which the service is performed or is performed outside of all places of business of the enterprise for which the service is performed; and
c) such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
The “B” prong has proved itself to be the most vexing for alleged employers because they must prove there is an actual distinction between their business and the work at issue. Here, the Massachusetts test provides a bit more leeway because a worker’s performance of the services in a different physical location different from the alleged employer can satisfy the “B” prong. Accordingly, the litigation in Tiger focused on the “A” and “C” prongs of the test.
Tiger has been in business for over 30 years and provides testing services for radon, lead, and water for commercial and residential services. Tiger’s office had employees consisting of administrative support, marketing, and management. Tiger had about 30 inspectors who paid their own health and workers’ compensation insurance and licensing fees. Inspectors could accept or reject jobs Tiger offered them without consequence. They paid for own travel to/from jobs and used their own tools and equipment to perform the work. Tiger collected customer payments and remitted a portion for each job to the applicable inspector.
In 2008, Tiger discontinued using the services of an individual inspector and opposed his application for unemployment insurance. The Department of Unemployment Assistance ruled that the inspector in question was a Tiger employee and all other inspectors were as well. A ten-year course of regulatory review and litigation ensued. Ultimately, the department’s board of review determined that Tiger satisfied the “B” prong because the inspectors worked entirely outside of Tiger’s place of business. However, Tiger failed to satisfy and the “A” and “C” prongs of the test because Tiger “exercised considerable direction and control” over and “closely monitored” the inspectors’ work.
The Court of Appeals disagreed with the board’s reasoning. The Court found that Tiger satisfied the “A” prong for several reasons. The inspectors were free to pick and choose amongst the jobs Tiger offered them without consequence. The inspectors could take as long as they wanted on an inspection as long as the work met the state’s standards. They used all of their tools and equipment, communicated with the customers directly, and were free to hire helpers without Tiger’s approval. The Court found that whatever control Tiger exerted over the inspectors (i.e., scheduling and administration of payments) had nothing to do with the actual work they performed.
Next, the Court held that Tiger satisfied the “C” prong because the inspectors were part of an independent trade. They were subject to licensure requirements and could perform inspection services for anyone who wanted to hire them. They had no need to depend upon Tiger to perform the services at issue. Indeed, the inspectors were free to advertise their services independently of Tiger and maintain their own customers.
Key takeaways: Satisfying the “B” prong of the ABC test can be difficult but is less for tests that consider where the worker performs the services at issue to be relevant. Affording workers as much discretion as possible in performing the work at issue—including the ability to perform services for other customers potentially in competition with the alleged employer—is very helpful in satisfying the “A” and “C” prongs.
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