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One of the first challenges that new business owners face as they grow is the hiring process. Clients are often unsure about whether they should bring on an employee or an independent contractor, or “1099 worker.” Oftentimes this is not a decision for the business owner to make; classification of workers requires an analysis based on various tests set forth by the IRS and state law. Understanding the difference between employees and independent contractors is critical, as misclassification of workers has consequences.

When looking at the relationship between a worker and employer, Connecticut applies the presumption that the worker is an employee. To prove otherwise, courts apply the “ABC Test.” All three parts of the test must be satisfied in order to show someone is, in fact, an independent contractor. If all parts are not satisfied, the worker will be found to be an employee. The test provides:

I    Such individual has been and will continue to be free from control and direction in connection with the performance of such service, both under his contract for the performance of service and in fact; and

II   Such 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

III  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 ....¹

Step I looks at the level of independence of the individual performing a service. The more independent, the more likely it is that an individual will be considered an independent contractor. An example of this is someone who sets their own schedule, deciding when they will work, where they will work, and what they need to accomplish while they work. Looking at both the written contracts and the actual “working relationship” can help determine the level of freedom. However, if a contract says someone will work “9-5,” but the individual comes and goes as they please, a court is more likely to look at the actions of the individual as opposed to what is written in the contract. They will likely find the individual sets their schedule and has more freedom.

Step II looks at the nature and physical location of the work performed. If someone is providing a service that is completely different from that of the business, they are more likely to be considered an independent contractor. For example, an electrician fixing the wiring at a sporting goods store is more likely to be considered an independent contractor than someone offering golf lessons at that same sporting goods store. Also, if the individual does not work at the same physical location as their employer, they are more likely to be an independent contractor. If that same golf instructor, instead of offering lessons in the store, travels to golf courses to give lessons, they will be more likely to be considered an independent contractor.
           
Step III looks to see if the individual is not just working for the employer but has their own independent business. Looking again at the golf instructor, if they only worked in the sporting goods store giving lessons, they would likely be seen as an employee. On the other hand, if they gave lessons at the sporting goods store, golf courses, any other locations, and had their own LLC, they would likely be considered an independent contractor.

In sum, workers are considered to be employees unless proven otherwise. To do so, an employer must show that the individual has freedom in the workplace, the work they do is different from that of the employer, and they have their own independent business. A written independent contractor agreement can help delineate the role of the independent contractor and is highly recommended to any business owner. Misclassification of workers carries significant penalties, including compensation for lost wages, repayment of benefits, wage law violations, IRS penalties, tax issues, and damaged reputation. The rules vary industry to industry, so it’s critical to consult with your attorney.

If you have any questions, please contact Attorney Wendy Estela at 860-812-1758 or westela@kkc-law.com. 
 
 ¹Vogue v. Administrator, 344 Conn. 321, 279 A.3d 727 (2022)