?The Massachusetts Appeals Court recently held that home inspectors were independent contractors and, therefore, ineligible for unemployment benefits. Tiger Home Inspection, Inc. v. Director of the Department of Unemployment Assistance overturned a lower court’s ruling affirming the final status determination of the Department of Unemployment Assistance (DUA) on the matter.
In 2008, Tiger, a home inspection company, discontinued using the services of an inspector, who subsequently filed for unemployment benefits. Tiger opposed his application for unemployment benefits, asserting that the inspector was an independent contractor, not an employee. The DUA disagreed and held that home inspectors were employees. The district court affirmed the DUA’s decision, and Tiger appealed.
The ABC test requires the employer to prove that:
- The worker has been and will continue to be free from control and direction in connection with the work.
- The work is performed outside the employer’s usual course of the business or outside of the places of business.
- The worker is customarily engaged in an independently established trade, occupation, profession or business.
While the DUA found that Tiger had established the second prong of the ABC test, because the inspectors performed services at customer locations that were entirely outside of Tiger’s place of business, it found that Tiger had not established the first and third prongs of the test. The Massachusetts Appeals Court disagreed.
Direction and Control
The Appeals Court found that Tiger had established the first prong of the ABC test, which turns on “two critical questions: did the person performing services have the right to control the details of how the services were performed and 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?”
According to the Appeals Court, the inspectors:
- performed their services free from Tiger’s direction and control where they could work as little or as much as they wanted for Tiger,
- worked at their own pace,
- could refuse any assignment offered by Tiger without penalty,
- performed their inspectional services without any communication with Tiger,
- contacted the customers directly,
- traveled to the inspection sites in their own vehicles and at their own expense,
- used their own tools and equipment for the inspections,
- issued inspection reports to customers without any input from Tiger, and
- were free to hire helpers at their own expense without having to obtain approval from Tiger.
The Appeals Court found that the factors considered by the DUA in finding that Tiger had not met this first prong did not bear on the essential inquiry regarding whether Tiger exercised considerable direction and control over the inspectors. Those factors included the fact that customers had to go through Tiger’s office to get an inspection, and customers made payments to Tiger and not to inspectors directly. Inspectors were issued shirts with Tiger logos and were featured on the Tiger website wearing those shirts. Inspection reports were on Tiger letterhead, and Tiger provided a manager to deal with customer complaints and purchased errors and omissions insurance for the inspectors.
Inspectors had to complete a written report following each inspection. The Appeals Court explained that requiring the inspectors to meet regulatory standards did not establish Tiger’s direction and control over the inspectors’ services.
Independently Established Trade
The third prong of the ABC test turns on whether the work could be viewed as an independent trade or business because the worker is capable of performing the service to anyone wishing to avail themselves of the services. The Appeals Court found Tiger had satisfied this prong. The evidence showed that inspectors were capable of performing inspectional services independently, and Tiger permitted inspectors to advertise and perform inspectional services for others as part of their own independent enterprises.
In concluding that Tiger had not satisfied this third prong, the DUA had improperly found that while the inspectors were capable of performing inspections independently, there was no evidence that any of them had actually done so. As clarified by the Appeals Court, the pertinent inquiry is not whether the inspectors in fact operated their own businesses, but whether they were free to do so.
Key Takeaways
While the ABC test continues to be a very fact-driven analysis, this case provides helpful guidance for navigating this test. With respect to the first prong of the ABC test, the Appeals Court clarified that the analysis must focus on factors of control and direction and not merely factors relating to the relationship between the entity and worker.
Moreover, the Appeals Court emphasized that requiring workers to meet regulatory or legal requirements does not establish control or direction. With respect to the third prong, the Appeals Court emphasized that the analysis must be based on whether the workers are free to perform services independently and not whether they actually do perform services independently.
Rachel Reingold Mandel and Andrea M. Sullivan are lawyers with Ogletree Deakins in Boston. © 2022. All rights reserved. Reprinted with permission.
