2016 VT 126
By Elizabeth Kruska
Here’s an unemployment case! And it’s not even about someone being unemployed, it’s about a company getting audited by the state for allegedly having not paid its unemployment taxes with respect to two employees. The Employment Security Board (ESB) the company didn’t pay for 2 employees for a couple years, and as a result owed the principal and penalties. The employer and the employees said this wasn’t necessary because the employees were actually independent contractors. SCOV, like the Jackson 5, said this is as easy as A, B, C. And as simple as do re mi. No, SCOV didn’t say that second part, but I wish they had.
The employer here is Great Northern Construction, or GNC. This has to do with construction, not vitamins and supplements—that’s the other GNC. The employees/contractors were O’Connor and LaPointe. Using a test called the ABC test, SCOV determines that with respect to O’Connor, ESB got it wrong and that he actually is an independent contractor. They affirm the ESB with respect to LaPointe, saying he really is an employee.
GNC does general construction, and has been in business in Vermont since the 70s. O’Connor also does construction, and specializes in historic renovation. He has an LLC and is available to work for any company that needs him. He owns specialized equipment to help with his work. Over the years he has built a good relationship with GNC and does a lot of work for them. It’s common for them to get in touch with him before starting a project to see if it’s something he can do. If he can, and when he works on a project, he sets his own hours and schedule, and gets paid by the project. At one point GNC tried to hire O’Connor, but he preferred to continue as an independent contractor, as that was more financially beneficial for him.
LaPointe also does construction. At the time of the issue here, he said he was self-employed as a contractor. Unlike O’Connor, though, he hadn’t registered himself as a solo or other company with the state. He could do outside work for other companies, but mostly worked for GNC. They paid him hourly and gave him punch lists of things to do.
When the Department of Labor audited GNC, they felt that O’Connor and LaPointe should have been treated as employees instead of contractors. GNC, because of how it classified both employees over the years, had not paid unemployment taxes on their behalf. The Department of Labor assessed the taxes, a penalty, and interest. GNC appealed to the Employment Services Board, which affirmed. GNC appeals to SCOV, which reverses with respect to O’Connor, finding that he was an independent contractor, but affirms with respect to LaPointe, treating him as an employee. That means there is still some penalty to be paid, but it needs to be recalculated to reflect LaPointe only.
Here’s the ABC test for determining if someone’s an employee (nb: the ABC test for bubblegum is a different test; do not get these confused). Most states use this test. The presumption is in favor of finding that someone is an employee; if an employer wants to contest this, it is their burden to prove otherwise. Employment is defined broadly as “services performed by an individual for wages” unless the employer can show (A) that the worker is and has been free from control or direction by the business; (B) the service the worker does is outside the employer’s usual course of business or geographic area; and (C) the worker is customarily engaged in an independently established trade, occupation, profession or business.
For O’Connor, under part A, it’s clear he was free from GNC’s general control. This gets construed broadly. GNC does not control O’Connor’s performance. They bid on jobs, and if he’s contracted to work, he works on the jobs on his own schedule and pace. He’s not required to work solely for GNC. He can work on jobs for various employers at once. SCOV found persuasive the fact that he turned down an employment offer from GNC at one point. O’Connor had his own specialized equipment, used an O’Connor LLC credit card to buy supplies, and even sometimes supplied materials to other contractors. All this points in favor of part A going in O’Connor’s favor and confirming him as an independent contractor.
Under part B, SCOV also concludes that O’Connor’s work was outside GNC’s usual course of business. GNC is a construction firm and does a mix of work. At one point they focused on historic restoration, but in recent years it's moved toward a broader range of construction. O’Connor does only historic restoration, and holds himself out as someone who specializes in that. By contracting with him he can fill a niche GNC needs for certain projects, but his type of work is not the only type of work they do. GNC could get away from projects that need historic restoration entirely, and that would probably cause them not to contract with O’Connor much or at all. SCOV doesn’t make that last point, but it certainly occurred to me while I was reading this.
Part C has to do with independent establishment of the worker. The Employment Security Board found that O’Connor met the C part of the test, and on appeal the Department of Labor didn’t challenge this, so SCOV leaves it alone. O’Connor meets this part of the test.
Part C, though, is where SCOV gets hung up with respect to LaPointe. Although LaPointe held himself out as a self-employed, independent contractor, he could only point to one other company for whom he provided services. LaPointe didn’t register a company with the state, he didn’t file a Schedule C for self-employment, and he didn’t really advertise his services except by word of mouth. That might be okay in some cases, but he was new to Vermont, so it seems unlikely that he had a large professional network to help refer jobs to him that way. Taking this into account, SCOV agrees with the ESB that LaPointe was an employee and not a contractor.
Since the ABC test is one where all three prongs have to be met, and since LaPointe doesn’t meet the C prong, SCOV affirms with respect to him.