In order to determine whether an employer is required to provide unemployment insurance coverage to an individual, the department utilizes an employment "test". Under statute and case law, an "employment" relationship will exist (unemployment insurance coverage is required) unless and until the employer is able to demonstrate that all three parts of the so-called "ABC Test" are met. Those tests are:
A. Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and
B. Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
C. Such individual is customarily engaged in an independently established trade, occupation, profession or business.
The Vermont Legislature chose to use the ABC test, which is much more inclusive than other employment "tests", in order to ensure broad unemployment insurance coverage. There has been significant case law developed over the years that helps define situations where unemployment coverage must be provided. The Vermont Supreme Court has made it clear that direction and control will exist where the employer has the "right" to provide direction and control, regardless of whether such direction and control is actually exercised. The employers usual course of business is any business activity the employer chooses to engage in. Likewise, the employers place of business is all places where the employer conducts its business, not just the main location or office from which the employer conducts its business.
Finally, being independently established means being established in a similar type of occupation or trade as the one being examined, and generally the individual must have some history of providing similar services for others in order for the "C" part of the test to be met.
The ABC Test vs. the IRS Independent Contractor Test
The Internal Revenue Service uses a different, less inclusive test to determine if an individual is an employee or an independent contractor. Basically, the IRS test is similar to the "A" part of the unemployment ABC Test and only looks at whether the employer provides direction and control over the services being performed. The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These relevant facts fall into three main categories; behavioral control; financial control; and relationship of the parties. It is possible to reach different conclusions on the employment status of an individual when different tests are used.
Employers should understand that the department will follow Vermont law and use the ABC Test to determine if a worker is an employee for unemployment insurance purposes, and will be liable to report wages paid to and pay taxes on those wages unless all 3 parts of the ABC test are met. This is true even if the IRS "Evidentiary Factors" Test has a different outcome.
Misclassification of employees is the single most common problem with regard to the proper reporting of individuals for unemployment insurance purposes.