As we know, there are a variety of tests used to determine Independent Contractor vs. Employee, and the proper test varies depending of the law being applied.
Most of these tests are balancing tests. A variety of factors are considered, and no single factor is determinative.
ABC tests, however, are different. ABC tests start with a presumption that a contractor is an employee, then requires a company to prove each of three factors to protect a contractor’s status as a contractor.
ABC tests tend to apply only to state unemployment coverage laws and, less commonly, to
state workers’ compensation laws.
ABC tests typically follow this standard formula, with some state law variations. The standard formula begins with the presumption that any individual worker is an employee and that to overcome that presumption, the company must prove each of the following:
(1) The worker is free from direction and control in the performance of the service, both under the contract of hire and in fact; and
(2) The worker’s services must be performed either (i) outside the usual course of the
employer’s business or (ii) outside all the employer’s places of business; and
(3) The worker must be customarily engaged in an independently established trade,
occupation, profession, or business of the same nature as the service being
Taken individually, parts 1 and 3 are balancing tests. Part 1 resembles a Right to Control Test, and part 3 resembles an Economic Realities Test, but in the overall context of an ABC test, the company must prove that both of these mini-tests weigh in favor of contractor status, and must satisfy part 2. Part 2 is not a balancing test at all.
In the aggregate, all three elements must be met to overcome the
presumption that the worker is an employee. Examples of states that use this ABC test in the unemployment context are Illinois (1), New Jersey (2), and Connecticut (3). Some states have enacted variants of the ABC tests, either modifying the factors or adding additional required factors. (4)
Companies operating in states with ABC Tests need to pay particular attention to the risk that their contractors may be deemed employees — at least for purposes of unemployment insurance or workers’ compensation.
Remember: A worker can be a contractor under some tests but an employee under others.
(1) Unemployment Insurance Act, 820 Ill. Comp. Stat. 405/212.
(2) New Jersey Unemployment Compensation Law, R.S. 43:21-19(i)(6).
(3) 63 Conn. Gen. Stat. § 31-222(a)(1)(B)(ii) 64.
(4) Examples include Maine, 26 MRS ch 13, sec 1043(11)(E); Massachusetts, MGL ch 149 sec 148B; and New Hampshire, NH ch 281-A:2.IV (workers’ compensation). Massachusetts’ modified (stricter) ABC test applies not only to unemployment compensation but also to state wage and hour laws, payroll recording and reporting requirements, withholding, and workers’ compensation laws.