Mark Dubois: Independent Contractors Can Present Labor Issues
Second of two parts.
Last week I wrote about the ethics issues related to independent contracting. Now for a bit on the labor issues. As I said in the preface to the last article, I am no labor lawyer. If anything you read in this article gives you pause for concern about how you run your business, talk to someone who knows this stuff.
I first learned about independent contractors when I represented a contractor who did a lot of public work. In Connecticut, we have something called the "prevailing wage" statute. This law requires that for any public project over a certain dollar threshold the contractor must pay "prevailing" wages set by the Department of Labor, which tend to be higher than many nonunion shops pay. As with most public jobs, my client bid the project with very thin margins, figuring he would make it up in change orders and by scrimping on things such as labor rates. One solution was to treat most of his employees as independent contractors. It did not work too well.
The relevant law is found in Connecticut General Statutes 31-222. In 31-222(a)(1)(B) is found something the state Department of Labor calls the ABC test. (It is kind of confusing, as the test is actually numbered I, II and III instead of ABC, but the substance is what counts.) The statute provides a default position toward an employer/employee relationship except if all three elements of the test are met.
The first provision is that the employee has been and will continue to be free from control and direction in connection with the performance of her service, both under her contract and in fact. Some of the determinative factors include who has the right to direct and control the employee/contractor; who decides what is to be done and how it is done; whether the employee/contractor uses his own means and methods to do the work; and whether the employer has any control over the employee/contractor other than as to the end result of the work.
Contrast the lawyer who hands the employee/contractor a file and says, "Here you go, let me know when it is done," with a lawyer who says, "Please review this matter and let's discuss how we should handle it."
The second provision concerns location and provides that to avoid an employer/employee relationship from being presumed, the service must be 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. Interesting. The test looks at both whether the employee/contractor is pursuing the usual work of the employer (contrast doing collection work for a dentist from your home with doing collection work for clients of and as an employee of a law firm) and where the work is done. If your "independent contractor" only has one office, and it is a room in your office, she may actually be an employee.
The final prong of the test is whether the employee/contractor is customarily engaged in an independently established trade, occupation or business. Does he have a firm registered with a separate juris number than his own? Does she have her own letterhead and business cards? Does he work for others besides you? Does she invoice you each week for time spent?
Remember, the test is conjunctive. All three elements must be met. Miss one and you have an employee and had better have been paying the required FICA, unemployment contributions and other tithes when the investigator comes to call.
As I said last week, this whole subject exists at the intersection of labor law and ethics rules. More and more I read about exciting new ways that lawyers are combining their talents to deliver legal services using new practice models, and "project" or "team" arrangements are one of them. I think we are really only limited by our imaginations.