IC Alert: Same Test, Two Different Results
The Independent Contractor Monitor
[Reprinted with permission from Contractor Management Services, LLC]
When dealing with independent contractor (IC) issues, just knowing the language of the tests is not sufficient. Companies utilizing the services of ICs need to know how the test is interpreted and applied in each state in which they operate. An excellent example of this point is the application of the commonly referred to “ABC Test” in Massachusetts and Illinois.
For those unfamiliar with the ABC test, it requires compliance with the all the following:
A. The worker is free from direction and control in the performance of his/her services, both in contract and in fact; and
B. The services are performed either (1) outside the usual course of business of the entity utilizing the worker OR (2) outside of all the places of business of the entity utilizing the worker ; and
C. The worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as the services performed.
In addressing the issue of what is considered to be “places of business” of the entity utilizing the services of a worker, the Massachusetts Supreme Judicial Court, in Athol Daily News, determined that, because newspaper carriers delivered the papers from house-to-house using the public roads, it is clear the work performed by the carriers (delivery of newspapers) was outside the premises of the newspaper company. The court found illogical the counter argument that the company’s “places of business” should include all the geographic area where its papers are delivered.
Unfortunately for those operating in Illinois, the Illinois courts do not share the logic of the Massachusetts courts. In 2005, in the Chicago Messenger Service case involving unemployment benefits, the Illinois Court of Appeals ruled that Chicago Messenger’s “places of business” included any place where the drivers are representing the interests of Chicago Messenger. In an earlier case, Carpetland U.S.A., Inc., the Illinois Supreme Court held that carpet measurers who went to customers’ houses to obtain measurements for quoting a price were “on the business premises” of Carpetland when they were at the customers’ houses because while at the house they were representing Carpetland’s interests. Relying on the Carpetland case, the court in Chicago Messenger held that courier drivers, while performing deliveries for Chicago Messenger, were representing the interests of Chicago Messenger when they picked up and delivered packages and, therefore, the roadways on which the drivers traveled became Chicago Messenger’s “places of business for purposes of the Act [part 2 of the B portion of the ABC test].” ii.
That two courts analyzing the same language came to two different conclusions emphasizes that just knowing the language of the test used is not sufficient. Companies using the services of independent contractors need to also know how the courts in the state and the applicable agencies apply and interpret the test. As illustrated, the ABC test in Illinois, although identical to the ABC test in Massachusetts, does not mean the same thing in each state. A worker, who would be recognized as an independent contractor in Massachusetts, would be deemed an employee in Illinois. Same test, two different results.
For companies in Illinois, the Chicago Messenger case is definitely a shock. What can be done about it? Read on...
i. In 2004, the Massachusetts legislature eliminated part 2 of the B portion of the test.
ii. Chicago Messenger argued that it was merely a broker of delivery service and, therefore, the drivers were not representing its interests. The court rejected this argument. There was not much discussion by the court on this issue. However, it appears that Chicago Messenger held itself out to the public as involved in the business of picking up and delivering packages, not just as a broker of such services.
Illinois House Bill 5002
HB5002, titled the “Employee Classification Act,” is being sponsored by Representatives G. Hanning, C. Soto, W. Delgado, M. Anotonia Berrios, L. McKeon, E. Acevedo, E. Goler, L. Jones, E. Washington, C. Howard, P. Verchoore, J. McGuire, C. Jefferson and L. Dugan. The purpose of the Bill as set forth in Section 3 states it is “intended to address the practice of misclassifying employees as independent contractors.” The Bill, in Sections 10 and 20, provides that any worker providing services to/for an employer or entity shall be considered an employee of the employer or entity unless the all provisions of the ABC test are met. The burden of proof is on the employer or entity claiming the worker is an independent contractor.
The penalties for misclassifying a worker as an independent contractor range from civil to criminal. The Bill would make it a Class 3 Misdemeanor criminal offense for an employer to attempt to induce a person to waive the provisions of the Bill. The civil penalties range from $1500 fines to punitive damages being paid to the person misclassified.
The current version of the Bill only applies to employers and entities that are contractors as defined in Section 5 of the Bill. A “contractor” is defined as any person who “undertakes to construct, alter, repair, move, wreck, or demolish any fixture or structure.” Therefore, unless further amended, the Bill does not apply to the courier industry. However, this Bill may give the courier industry an opportunity to clarify the independent contractor issue in Illinois and alleviate the courts interpretations in the AMF Messenger and Chicago Messenger cases. CMS recommends that courier companies in Illinois and/or the industry immediately start lobbying their representatives to have the Bill amended to add a section expressly dealing with the courier industry and providing a more reasoned and logical approach to applying the test for determining when a worker is an independent contractor as opposed to an employee.
The courts in Illinois have spoken and it is clear they will not, any time soon, be persuaded to back off or temper their interpretation of the test. If a change is to be made in Illinois for the courier industry, it will have to be done at the legislature. We encourage courier companies in Illinois to work with their associations and to contact their state legislators, make them aware of the problems caused by the Illinois courts, and request legislative action to remedy the adverse impacts of the court cases.
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Through regular newsletters, CMS is taking the lead in making sure that everyone is aware of the issues, nationwide, regarding the use of independent contractors because with awareness comes the appropriate action. If you would like to receive these updates, please use the following link: http://www.icadvantage.com/Email.asp
Dennis P. Roccaforte
President - Contractor Management Services, LLC.
If you would like to speak to a CMS representative, call: 800-742-7508 or visit the CMS website at www.ICTheRightWay.com.
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