Most judicial decisions on the issue of independent contractor status go against the putative employer, with a finding that the people are statutory employees. A Massachusetts court has just reversed (to a small degree) that unfortunate trend. A court has ruled that home inspectors for an inspectional services company were independent contractors under the rigorous tri-partite A-B-C test. The case is entitled Tiger Home Inspection, Inc. v. Director of the Department of Unemployment Assistance and issued from the Massachusetts Court of Appeals.
The test for independent contractor in Massachusetts is (as in New Jersey and other States) based on the so-called ABC test. All three elements of the test must be met. This three-part mandates that the putative employer demonstrate that: (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; (b) the service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the 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 lower court found that the Company satisfied Part B because the inspectors performed services at customer locations that were entirely outside of the employer’s place of business, but it failed on the first and third elements.
The Court of Appeals Court found that the first element was met because it found that the inspectors performed their services free from the Company’s direction and control. For example, they could work as little as they wanted for the Company and could refuse any assignment offered without suffering any penalty. They worked independently, without guidance or communication from the Company. They also used their own vehicles and tools. Importantly, they could hire helpers at their own expense without needing to obtain approval from the Company. The Court found, in contrast to the lower court, that this evidenced a lack of control. The fact that they had to prepare reports was only to meet the standards in the regulations and was not “control” or “direction.”
The third prong of the ABC test is, as I have always maintained, the hardest prong for the employer to satisfy, i.e. whether the entity/person is an “independent trade or business.” On this issue, the Court was eminently satisfied and concluded there was “little question” that the Company met this test. The inspectors could perform their services independently and they were also allowed to advertise and perform these same services for others as part of their “businesses.” The key here was that the inspectors possessed the ability to work for others, not whether they had actually done so.
I applaud this result but I am still wary. I know in New Jersey that the third prong, the business prong, is not satisfied by merely giving the independent contractor the theoretical right to derive business from others. Here, the DOL (and the law) requires a showing that other business is, in fact, secured from others. One response from employers would be (as I have done) to require contractors they engage to provide evidence, up front, that the person does get business from other sources.
Ounce of prevention…