Applying the very strict "ABC test" defining independent contractor status under Indiana's unemployment insurance law, the Indiana Supreme Court ruled that a company (Q.D.-A.) did not misclassify its driver as an independent contractor. Q.D.-A. was found not to be the employer of the driver in question. Therefore, Q.D.-A. did not owe the Indiana Department of Workforce Development any back unemployment insurance taxes.
INDIANA SUPREME COURT FOUND THAT Q.D.-A. PROVED ALL THREE PARTS OF ABC TEST: In a unanimous decision, the Indiana Supreme Court determined that Q.D.-A. (a company that matches drivers with businesses needing large vehicles, like RVs, delivered to them) successfully proved all three parts of the ABC test to convince the Indiana Supreme Court that the driver (performing services for Q.D.-A.) was not an employee of Q.D.-A. for purposes of the Indiana Unemployment Compensation Act. Q.D.-A, Inc. v. Indiana Dep't of Workforce Dev., No. 19S-EX-43 (Jan. 23, 2019).
ABC TEST: The ABC test presumes that the worker is an employee unless the company can establish all three parts of the ABC test. The ABC test used by the Indiana Department of Workforce Development is:
A. The individual (driver in this case) has been and will continue to be free from control and direction in connection with the performance of such service, both under the individual's contract of service and in fact. AND
B. The service is performed outside the usual course of the business for which the service is performed. 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 service performed, or the individual is a sales agent who receives remuneration solely upon a commission basis and who is the master of the individual's own time and effort.
The Indiana Supreme Court determined that Q.D.-A. won on all three parts of the three-part legal test by proving that A) the driver was not under Q.D.-A.'s control or direction, B) the driver performed a service outside the company's usual course of business, and C) the driver ran an independent business.
INDIANA DEPARTMENT OF WORKFORCE DEPARTMENT FOUND THAT DRIVER WAS MISCLASSIFIED: The Indiana Department of Workforce Development (DWD) had previously determined Q.D.-A. did not satisfy the ABC test and therefore had misclassified the driver as an independent contractor. A hearing before an Administrative Law Judge (ALJ) was held, and the ALJ agreed with the Indiana Department of Workforce Development that the driver was misclassified by Q.D.-A.
ANALYSIS OF INDIANA SUPREME COURT: Next, Q.D.-A. appealed through the lower courts, arguing that it had satisfied all criteria of the ABC test. The case ended up before the Indiana Supreme Court.
Part A - Control and Direction: Looking at "control and direction" (Part A), the Indiana Supreme Court justices determined that Q.D.-A. had no control over the driver. The Indiana Supreme Court found that the driver "expressly understood and agreed" that he was an independent contractor under a contract that required him to provide all his own equipment and gave him ultimate control over how to complete his work.
The Indiana Supreme Court noted in its decision that the driver could refuse jobs with no repercussions, choose his own hours and routes, work for as many drive-away companies as he wanted, negotiate his per-trip pay, and call in at his own convenience for jobs. Therefore, Q.D.-A. won on Part A of the ABC test.
Part B - Course of Business: Looking at "course of business" (Part B), the justices then determined that the driver (who provided "drive-away" services) performed a service outside Q.D.-A.'s usual course of business. The justices rejected the Indiana Department of Workforce Development's argument that the terminology with which Q.D.-A. markets itself to the public should factor into whether or not it provided "drive-away" services like the driver.
The Indiana Supreme Court said: "To be sure, advertising can reflect services a company offers to its customers. But we cannot uncritically rely on that advertising to fully reflect the activities a company regularly or continually performs."
Therefore, Q.D.-A. won (an unexpected legal victory!) on Part B of the ABC test.
PART C - INDEPENDENTLY ESTABLISHED: Looking at "independently established" (Part C), neither party disputed the Administrative Law Judge's finding that Q.D.-A. "provided sufficient evidence to demonstrate that [driver] was customarily engaged in an independently established trade, occupation, profession, or business of transporting commodities."
"So we assume Q.D.-A. meets this prong of the ABC test," the Indiana Supreme Court Justices necessarily concluded. Therefore, Q.D.-A. easily won on Part C of the ABC test.
CONCLUSION: The Q.D.-A. opinion is important, especially on what the "usual course of business" (Part B) means under the Indiana Unemployment Compensation Act. While the Indiana Supreme Court uses a direct, "same activity" analysis, it also believes the activity at issue not only be the same between the company and the independent contractor, but be "regularly or continually performed."
Significantly, the Indiana Supreme Court noted that Indiana statutes and case law did not define the "usual course of business" (Part B of the ABC test). Therefore, the Indiana Supreme Court adopted the definition used by Connecticut and New Hampshire. The Indiana Supreme Court held that "if a company regularly or continually performs an activity, no matter the scale, it is part of the company's usual course of business."
The Indiana Supreme Court commented that a company can engage in "more than one course of business," depending on its regular activities.
The Indiana Supreme Court held that Q.D.-A. satisfied its legal burden of showing the driver was not misclassified under the ABC test, and the driver was not entitled to unemployment benefits. Q.D.-A. was successful in a tough independent contractor legal battle under a very strict independent contractor legal test.
To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors), please contact Attorney Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at [email protected].