Independent Contractor or Employee: A Tough Test Got Tougher Print

The Cumberland County Superior Court has once again reaffirmed what you might already know:  hiring independent contractors in Maine is a risky business, and it is likely the individual you have deemed to be an independent contractor is actually an employee.

The reasons for hiring someone as an independent contractor (also known as a 1099 hire) are many and varied.  However, simply because you, as an employer, are labeling someone an independent contractor, or even have an independent contractor agreement signed by both parties, does not make it so in the eyes of Maine regulatory agencies and Maine courts.

A classic case is an individual who is considered an independent contractor and who works for a period of time until the project stops.  The independent contractor is free to work elsewhere and you leave the relationship with a positive feeling … until … you get a notice from the State of Maine’s Unemployment Insurance Commission stating that the “independent contractor” has applied for unemployment benefits, and your rating will be charged unless you can rebut the presumption that the individual is, in fact, an employee. 

This is exactly the situation the Superior Court faced recently.  The employer was a general contractor, and it hired an individual to perform carpentry work.  The individual hired had business cards, invoiced the general contractor, held himself out as a business, worked for other businesses while working for the general contractor in question, determined his own hours, and agreed to carry insurance.  All of this would tend to underscore that this individual was truly an independent contractor.  However, as anyone who has appeared at an unemployment hearing to fight an independent contractor claim for benefits can attest, there are still two hurdles; first, as mentioned before, there is a presumption of employment that the employer needs to rebut; second, the “ABC Test” that employers have to satisfy is an often insurmountable obstacle.  The ABC Test has three prongs, all of which the employer needs to satisfy.  In the instant case, the employer tried to argue that the individual’s work was outside its usual course of business, one of the prongs of the ABC Test.  The Court stated that the employer “cannot reasonably detach itself from workers who provide the necessary service for its business to survive,” and therefore the individual was an employee, and the employer is responsible for payment of unemployment taxes.

This case is important for employers to understand.  Rarely is an individual going to be hired, either as an employee or as an independent contractor, for a role that is not a “necessary service for its business to survive.”  Therefore, the hired individual is likely to be an employee, and not an independent contractor.  If you are using independent contractors, ensure that they fit within the narrow parameters of the various tests.  Furthermore, understand that terminating employees or independent contractors will likely result in an unemployment claim in a down economy, so you must be adequately prepared for and represented at an unemployment hearing if you wish to contest the awarding of benefits. 

If you have any questions about this or any legal matter,
please don’t hesitate to contact the attorneys at Taylor, McCormack & Frame.
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