The Connecticut Supreme Court’s recent decision in Standard Oil of Connecticut, Inc. v. Administrator, Unemployment Compensation Act is a decision likely to be of significance for all employers, not just those in Connecticut.
The Connecticut Department of Labor, like many states, uses the ABC test in determining whether a worker is properly classified as an independent contractor. To be an independent contractor under Connecticut’s ABC test, an individual must meet all three of the following tests: (a) the worker must be free from direction and control in the performance of the service, both under the contract of hire and in fact; and (b) the worker’s services must be performed either outside the usual course of the employer’s business or outside all of the employer’s place of business; and (c) the worker must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service being provided.
Standard Oil used installers/technicians it classified as independent contractors to install and service home heating and alarm systems to residential customers. The Connecticut Department of Labor initially found and the lower court affirmed these installers/technicians were misclassified because they did not meet Part A and Part B of the ABC test. The Connecticut Supreme Court reversed these findings.
Connecticut Supreme Court Finds Customers’ Homes Are Not Companies' Places of Business
In addition to finding Standard Oil’s installers/technicians performed work that was part of Standard Oil’s usual course of business, the Connecticut Department of Labor and the lower court found these installers/technicians performed work at customers’ homes, which it determined constituted Standard Oil’s places of business.
The Connecticut Supreme Court initially stated there is no definition of “places of business” in the Connecticut Unemployment Compensation Act and thus sought guidance from the Act’s legislative history. While the court found no discussion of the statutory language in the legislative history, it found that a related provision determining whether an employer is covered by the statute, contained in General Statutes § 31-223, was vital to providing guidance on how “place of business” should be defined. The court held the two principal criteria used to determine whether an independent contractor or subcontractor may be deemed an employee in § 31-223—whether the work is: “(1) in furtherance of the employer’s usual course of business, and (2) performed in, on or around premises under such employer’s control”—were nearly identical to the two prongs described in Part B of the ABC test in § 31-222(a)(1)(B)(ii)(II). The court held the “most harmonious” reading of § 31-222 and § 31-223 would be to construe “place of business” as the more specific definition “in, on or around premises under such employer’s control,” which the court explained would not include the customer’s home. In reaching its decision, the court also specifically relied upon the “practical consequences that might follow [from the broad interpretation of ‘place of business’ as argued by the Department of Labor], including the taxing of two different business entities for the same worker and the receipts of benefits by the unemployed worker from both entities, as when an enterprise hires an independent contractor who operates a sole proprietorship, partnership, limited liability company or corporation that also pays unemployment contribution taxes for workers it sends to perform services for another enterprise.”
The Connecticut Supreme Court found that there was no clear-cut agency interpretation or agreement on a definition in the two previous Connecticut court decisions that analyzed “place of business.” The court similarly found inconsistent interpretation of “place of business” in outside jurisdictions. It relied on two principles to govern its construction of Part B of the ABC test. “The first principle relates to the harmonious construction of related statutes.” “The second principle relates to the conjunctive nature of the test, which suggests that no one part of the test should be construed so broadly—and, therefore, made so difficult or impossible to meet—that the other two parts of the test are rendered superfluous.” Based on these principles, the court concluded that the meaning of “places of business” should not be extended to the homes in which the installers/technicians worked, unaccompanied by Standard Oil’s employees and without Standard Oil’s supervision. The court reasoned the homes of Standard Oil’s customers, unlike its business offices, warehouses and other facilities, were under the homeowners’ control.
The Connecticut Supreme Court noted that its interpretation is consistent with the Department of Labor’s document, “Self-Assessment of the Employer-Employee Relationship for CT Unemployment Taxes,” which is designed to allow employers to perform a self-assessment of the status of its workers it classifies as independent contractors. Under the section pertaining to Part B of the test, the section asks, “Does the individual perform any of the work on the firm’s premises?” The court found this language to indicate that the Department of Labor traditionally understood “place of business” as “premises controlled” by the employer.
Connecticut Supreme Court Finds Installers/Technicians Were Free from Standard Oil’s Direction and Control
Regarding Part A of the ABC test, the court concluded that the Connecticut Department of Labor’s modified findings of fact did not reasonably support its conclusion that Standard Oil had the right to control the means and methods of the work performed by the installers/technicians. The court based its holding on the following findings:
- Standard Oil did not own or operate the tools, machinery or heavy duty vehicles required for installation.
- Standard Oil did not supervise the installers/technicians and did not inspect their work.
- Although an assignment, once accepted, had to be performed within a designated timeframe set by Standard Oil and the customer, the installers/technicians chose the days on which it was convenient for them to work.
- Each of the installers/technicians had an independent business that provided the same type of services that they provided for the plaintiff. The installers/technicians had their own business cards, advertised their businesses and earned an undetermined amount of their income from sources other than Standard Oil.
- The installers/technicians used their own equipment and tools to complete each project.
- Although the installers/technicians were required to provide their services personally and were not permitted to subcontract or hire casual, pickup or day laborers, they could hire assistants to help them perform their work and could supervise their assistants.
- Standard Oil did not provide installers/technicians with an employee handbook and did not pay for their training or require specific training related to its products.
- Standard Oil provided installers/technicians with shirts and hats labeled “Standard Oil” but only because wearing these items might alleviate customer concern. Wearing clothing with this labeling was not required.
- Installers/technicians received compensation on a set rate per piece of work rather than an hourly rate.
- Installers/technicians paid for their own transportation without reimbursement.
- Installers/technicians submitted invoices, which is indicative of the absence of control and direction.
The Connecticut Supreme Court acknowledged the Department of Labor’s finding that five installers/technicians indicated in a questionnaire that Standard Oil had the right to direct how they performed their work but held these questionnaires do not outweigh the Department of Labor’s numerous other findings in support of the conclusion that Standard Oil did not exercise control and direction over installers/technicians.
What This Means for Employers
The Connecticut Supreme Court’s decision in Standard Oil is welcome news to Connecticut employers as the court rejected the state Department of Labor’s strict interpretation of the ABC test, which made it nearly impossible to satisfy. Connecticut employers who use independent contractors at customers’ homes can now rest assured the Department of Labor will not find their contractors are misclassified solely because their customers’ homes are interpreted as the employer’s place of business.
For non-Connecticut employers, the Standard Oil decision is the latest development in nationwide litigation challenging the classification of independent contractors. All employers should review whether their independent contractors are properly classified under the current law of the states in which they operate. Independent contractor law is an area that is constantly changing through new statutes and case developments, and what is considered a proper classification today may be a misclassification tomorrow.