Massachusetts Appeals Court Holds That Home Inspection Company’s Inspectors Were Independent Contractors Under ‘ABC’ Test

In a decision that further clarifies Massachusetts law with regard to employee classification, the Massachusetts Appeals Court recently held that home inspectors working on behalf of an inspectional services company were independent contractors (and not employees) under the ABC test for determining employment status, and, therefore, ineligible for unemployment benefits. The decision, 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.

Background

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 the inspector (and all others “similarly employed”) were employees under the ABC test. The district court affirmed the DUA’s decision and Tiger appealed.

In the context of unemployment benefits in Massachusetts, “all services performed by an individual for an ‘employing unit’ are presumed to be employment unless the ‘ABC test’ is satisfied. … The three-part conjunctive [ABC] test requires the entity seeking to rebut the presumption [of employment] to prove that ‘(a) such individual has been and will continue to be free from control and direction in connection with the performance of such services, both under his contract for the performance of service and in fact; and (b) such service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed; and (c) such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.’” 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.

First Prong of the ABC Test: 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 (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.’” 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, while relevant to the relationship between the inspectors and Tiger, 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 … any customer who contacted an inspector directly to schedule an inspection was to be referred to Tiger for central scheduling”; “customer payments were made to Tiger and not to the 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 that “Tiger provided a manager to deal with customer complaints and … purchased errors and omissions insurance for the inspectors.”

Moreover, where the DUA focused on factors relating to direction and control—e.g., that inspectors had to complete a written report following each inspection—the Appeals Court found the DUA’s focus to be flawed where Tiger was merely requiring the inspectors to meet regulatory requirements. The Appeals Court explained that requiring the inspectors to meet regulatory standards did not establish Tiger’s direction and control over the inspectors’ services.

Third Prong of the ABC Test: Independently Established Trade or Business

The third prong of the ABC test 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 to anyone wishing to avail themselves of the services or, conversely, whether the nature of the business compels the worker to depend on a single employer for the continuation of the services.” The Appeals Court found that there was “little question” that Tiger had satisfied this prong. The evidence showed not only that inspectors were capable of performing inspectional services independently, but that 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, “[t]he 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, Tiger provides helpful guidance for navigating this test. (Of note, in December 2021, the Massachusetts Supreme Judicial Court held that the federal Fair Labor Standards Act’s “totality of the circumstances” test was the proper test for determining joint employment under Massachusetts wage laws.) 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.