11/08/2005
CONTACT: Melissa Sharp, (202) 554-9000
NFIB’s Legal Foundation Joins Fight to Protect Independent Contractor Classification
Washington, D.C. — Bonny Dutton, a small-business owner of an apparel firm, Fleece on Earth in Vermont, contracts retirees to knit patterns for her shop. Her Vermont knitters work on their own schedules, use their own tools, have no deadlines and do their knitting from whatever location they choose.
Dutton considers these knitters to be independent contractors. But the Vermont Employment Security Board has declared that these retired women are Dutton’s employees, and is demanding that Dutton pay back taxes and unemployment insurance for these workers. Dutton fought this ruling in court, and now the National Federation of Independent Business Legal Foundation has stepped in and filed an amicus brief urging the Vermont Supreme Court to side with Dutton, and save the status of independent contractors in Vermont.
The Vermont law governing independent contractors establishes a three-part “ABC” test for determining whether workers are truly independent contractors or employees. The law requires, A- workers must be free from control or direction from the contractor; B – the service provided by an independent contractor must be outside the usual course of business; and C – the worker is generally engaged in some sort of independent occupation. The Vermont State Employment Board argues that because Dutton reserves the right to accept or decline products produced by the knitters, this demonstrates control or direction by Dutton, thereby violating part “A” of the test. The knitters, most whom have never even been to Dutton’s store, consider themselves to be independent workers and do not believe Dutton acts as an employer.
“The ‘ABC’ test adopted by Vermont is intended to clarify who is and who is not an independent contractor. It was not intended to eliminate the status of these workers altogether. Dutton does not control or direct the knitters’ work; she simply says she will accept garments that meet certain requirements. As a contractor she has the right to decide what products she will pay for,” said Karen Harned, executive director of NFIB’s Legal Foundation. “Accepting the Board’s argument would essentially eliminate the status of independent contractors in Vermont. Who contracts out for something but doesn’t specify what the end product should be?”
The distinction between employees and independent contractors is confusing for small-business owners not only in Vermont but across the country. Recognizing this confusion, the Internal Revenue Service recently overhauled their 20-factor test for employee classification. The new approach combines the old 20-factor test into three groups; behavioral control, financial control, and the relationship of the parties. The test now requires that employers provide evidence under each category to justify classifying a worker as an independent contractor.
“The new IRS test is a step in the right direction, but it is still fairly complicated and confusing. Correctly classifying who is an independent contractor is an expensive and messy process that often requires small-business owners to sit down with an attorney or an accountant to make sure that workers who they hire to do a certain job are truly independent contractors. This classification process needs to simplified and protected so that small-business owners, the government and workers are all clear on who can be an independent contractor,” Harned said. “If this classification is not protected, many small-business owners like Dutton, who can not afford to hire employees, will be in danger of losing their business.”
The case is, Fleece on Earth v. Vermont Department of Labor, Docket numbers 2005-367 Supreme Court of the state of Vermont.
The NFIB Legal Foundation is a 501(c)(3) organization created to protect the rights of America's small-business owners by providing advisory material on legal issues and by ensuring that the voice of small business is heard in the nation's courts. The National Federation of Independent Business represents the consensus views of its 600,000 members in Washington, D.C., and all 50 state capitals.
