Home Inspectors Are Independent Contractors, Says Massachusetts Appeals Court
The Massachusetts Appeals Court recently found that home inspectors who worked through a home inspection company were independent contractors rather than employees under the state unemployment insurance law.
The Appeals Court’s decision, Tiger Home Inspection, Inc. v. Dir. of the Dep’t of Unemployment Assistance, reversed a lower court decision holding that the home inspectors should have been classified as employees. In its holding, the Appeals Court found that the home inspection company satisfied all three prongs under the so-called “ABC test,” which is used to determine independent contractor status under the unemployment insurance law.
The ABC Test
For purposes of the unemployment insurance law, individuals providing services are deemed employees unless the three-prong standard known as the ABC test applies. (The ABC test applies in other contexts as well, in a more restrictive form – for instance, in determining whether service providers are employees under the Massachusetts Wage Act.)
Specifically, to rebut the presumption that an individual providing services is an employee for unemployment insurance purposes, the business engaging the individual must prove all of the following:
(a) The individual is free from the business’s control and direction in connection with the performance of the services, both under the contract for the services and in fact;
(b) The services are performed either outside the business’s usual course of operation or outside of all of its places of business; and
(c) The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the services performed.
The case involved whether home inspectors used by Tiger Inspection, Inc., a home inspection agency, were employees or independent contractors. A lower court had affirmed the Department of Unemployment Assistance’s (“DUA”) ruling that the inspectors were employees.
Tiger offers home inspections for residential customers, using a pool of licensed home inspectors. Inspectors pay their own licensing fees, workers’ compensation insurance and health insurance premiums, and are free to accept or reject any assignment from Tiger. Inspectors travel to the inspection sites at their own expense, use their own equipment and tools, and collect payments from the customers, which the inspectors then turn over to Tiger in exchange for a percentage of the inspection fees charged to the customers. Inspectors can negotiate their own percentage rates with Tiger.
Tiger requires inspectors to sign written acknowledgements that they are independent contractors. If Tiger decides that it does not want to continue to use an inspector, it simply stops offering the inspector work.
In the summer of 2008, Tiger opposed an application for unemployment insurance benefits filed by an inspector Tiger no longer used. After an investigation, the DUA concluded that the inspector, as well as other “similarly employed” inspectors, had been an employee rather than an independent contractor.
Over a decade of legal proceedings followed. Ultimately, a state district court judge affirmed the DUA’s determination that the inspectors were employees. Tiger then appealed to the Appeals Court.
The Appeals Court’s Decision
The Appeals Court reversed the DUA’s decision and found that the inspectors were independent contractors and not employees. In particular, the Appeals Court disagreed with the DUA’s determinations as to Prong A (direction and control) and Prong C (independently established trade or business) of the ABC test.
The court stated that Prong A “turns on two critical questions: did the person performing the services (1) have the right to control the details of how the services were performed; and (2) have the freedom from supervision not only as to the result to be accomplished but also as to the means and methods that are to be utilized in the performance of the work?”
The Appeals Court found the DUA’s analysis of Prong A “flawed” because the DUA had focused on external factors, such as the fact that customers had to go through Tiger’s office to get an inspection, customers paid Tiger directly, inspectors wore shirts with the Tiger logo and were featured on Tiger’s website, and inspection reports were issued on Tiger stationery. The Appeals Court noted that none of these factors went “to the essential inquiry, which is the extent of direction and control over the work of the inspectors.” (Emphasis in original.)
Instead, the Appeals Court held that Tiger had satisfied Prong A of the ABC test, observing that inspectors had the freedom to set their own schedules, could refuse assignments, contacted the customers directly, traveled to and from inspection sites at their own expense, used their own equipment, issued their own reports, and even were permitted to hire helpers. In the court’s view, all of these factors “showed that inspectors performed their services free” from Tiger’s “direction and control.” The Appeals Court noted that the few factors cited by the DUA in its analysis of Prong A that focused on the performance of work were actually regulatory requirements and, therefore, did not implicate Tiger’s “direction and control” of inspectors.
The Appeals Court also found the DUA’s analysis of Prong C flawed. According to the Court, Prong C turns on “whether the service in question could be viewed as an independent trade or business because the worker is capable of performing the service” for any possible customer, or, conversely, whether “the nature of the business compels the worker to depend on a single employer” for the services. On this issue, the DUA found that Tiger had not satisfied Prong C because it failed to show that any of the inspectors actually did work independently.
The Appeals Court noted, however, that the pertinent inquiry “is not whether the inspectors in fact operated their own businesses, but whether they were free to do so.” The Court found that there was nothing preventing inspectors from independently performing their services, and, therefore, the inspectional services did “constitute an independent trade within the meaning of (Prong C).”
Implications For Employers
The Tiger Home Inspection decision provides helpful clarification as to how the individual prongs of the ABC test are likely to be interpreted in the unemployment insurance context.
Further, the Appeals Court made a point to note that its analysis of the ABC test could apply to other contexts as well. This is significant because other state statutes, such as the Massachusetts Wage Act, apply a variant of the ABC test to determine independent contractor versus employee status.
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Please feel free to reach out to one of our experienced employment attorneys if you have any questions about the Appeals Court’s Tiger Home Inspection decision or your organization’s responsibilities and options with regard to the classification of workers.