Today I am providing an employment law reality check that should burst the bubble for large and small employers in Connecticut who make use of independent contractor classifications. It should also be a warning to workers: read before you sign. An employer should think twice before handing over a contract; the label on the page does not decide whether an employment relationship exists at law. It usually does not.
Playing Games with Classification
For some reason, it remains a favorite move of businesses of all sizes to “play games” with employee classification in order to save money on payroll. They are dead wrong, and this is not a close issue. “1099 employees,” or independent contractors, are not a subset of employees and should not be thought of as such. It is a catastrophic mistake to believe otherwise.
The Fair Labor Standards Act looks to economic reality, not labels. Goldberg v. Whitaker House Coop., 366 U.S. 28, 33 (1961).
Same Primary Duties as Full-Time Employees
If a business maintains that its independent contractors are performing any of the same primary duties and responsibilities as its full-time employees, it is invariably on the wrong side of employment misclassification law. Federal courts use a multi-factor economic-realities test. Barfield v. New York City Health & Hosps. Corp., 537 F.3d 132 (2d Cir. 2008); Zheng v. Liberty Apparel Co., 355 F.3d 61, 71–72 (2d Cir. 2003).
What a Misclassified Worker Risks
A worker who accepts a misclassified role risks responsibility for additional taxes, including FICA taxes and self-employment taxes, costs that would otherwise include an employer contribution. 26 U.S.C. §§ 3101, 3111, 1401. The worker also surrenders protections under employment laws and regulations, including rights to benefits and anti-discrimination protections, the right to overtime under 29 U.S.C. § 207, and, critically, the right to control working hours, methods, or creative output that a genuine independent contractor would retain. See also 42 U.S.C. § 2000e(f) (Title VII coverage limited to employees).
Vendors, Not Conversions
Independent contractor classifications are for vendors, not for part-time employees, not for new hires, and not for any other conversion of an existing employment relationship.
If you run a construction business or a home cleaning service, the laborers or cleaners who provide the core labor of your operation are employees, no ifs, ands, or buts. The entity may be the independent contractor to the client; the workers who are the muscle of your business are a different question entirely.
The Connecticut “ABC Test”
Conn. Gen. Stat. § 31-222(a)(1)(B)(ii) presumes employment unless the hiring party proves all three parts: (A) control and direction; (B) service performed outside the usual course of the business or outside all places of business of the enterprise; and (C) customarily engaged in an independently established trade or business of the same nature. The test is conjunctive; miss any prong and service is employment under the statute. JSF Promotions, Inc. v. Administrator, Unemployment Compensation Act, 265 Conn. 413, 418–19, 828 A.2d 609 (2003). On Part C, work for other entities is relevant but not dispositive; courts apply a totality of the circumstances analysis. Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act, 324 Conn. 822, 155 A.3d 738 (2017).
Federal and State Penalties
At the federal level, good faith can mitigate certain liquidated damages with prompt correction. 29 U.S.C. § 260; see remedies at 29 U.S.C. § 216(b). The State of Connecticut may be slower to discover these classification schemes, as enforcement appears to be a low priority at present. However, civil penalties are on the books: Conn. Gen. Stat. § 31-69a provides a civil penalty of $300 per violation; § 31-69a(a)(2) treats each day of a § 31-288(g) violation as a separate offense.1 Section 31-288(g) targets knowing misrepresentation of employees as independent contractors in the workers’ compensation premium context, a class D felony that can trigger a stop work order.2 Connecticut also maintains a Joint Enforcement Commission on Employee Misclassification under § 31-57h.
This is not legal advice, because legal advice can only be rendered on an individual basis under the privilege between a lawyer and client. Consider it a public service announcement.
Authorities Cited
Full Authorities Cited
- Barfield v. New York City Health & Hosps. Corp., 537 F.3d 132 (2d Cir. 2008)
- Goldberg v. Whitaker House Coop., 366 U.S. 28 (1961)
- JSF Promotions, Inc. v. Administrator, Unemployment Compensation Act, 265 Conn. 413, 828 A.2d 609 (2003)
- Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act, 324 Conn. 822, 155 A.3d 738 (2017)
- Zheng v. Liberty Apparel Co., 355 F.3d 61 (2d Cir. 2003)
- 26 U.S.C. §§ 1401, 3101, 3111
- 29 U.S.C. §§ 203(e), 203(g), 207, 216(b), 260
- 42 U.S.C. § 2000e(f)
- Conn. Gen. Stat. §§ 31-57h, 31-69a, 31-222(a)(1)(B)(ii), 31-288(g)
- Rev. Rul. 87-41, 1987-1 C.B. 296