The committee heard from the Legislature’s lawyers Thursday morning about a December case that decided whether two workers at a Vermont company were employees or independent contractors. The committee also heard about cases dating back 10 years.
The December Vermont Supreme Court decision, Great Northern Construction Inc. v. Department of Labor, upheld the state’s decision that one worker was an employee but overturned the state’s decision relating to a different worker, and decided that person was instead an independent contractor.
The case dealt specifically with the classification of the two workers in relation to whether the company needed to pay taxes for unemployment insurance. (Under Vermont law, that standard is different from the standards for determining whether the company needs to pay workers’ compensation insurance.)
The main disagreement between the court and the Department of Labor had to do with the so-called nature of the business test, which holds that a worker is an employee if the person performs work that is central to the purpose of the business.
That “nature of the business” test was the main sticking point in controversy during the 2016 legislative session over a bill that would have rewritten Vermont’s labor laws and made it easier for businesses to classify people as independent contractors for both unemployment insurance and workers’ compensation purposes.
Great Northern Construction is a general contractor based in Burlington and a member of the Home Builders and Remodelers Association of Northern Vermont. The company started out restoring historic sites in the 1970s but evolved into a general contracting firm over time, according to the Vermont Supreme Court.
Both the Department of Labor and the high court applied a three-part test to determine if each worker was an employee, as the department alleged. Under the three-part test, often called the ABC test, the worker must meet all of three factors to be considered an independent contractor.
The first part says an independent contractor has the freedom, both in contract and in fact, to control and direct the work he or she does. The second part says an independent contractor must not be performing a job that is central to the larger company’s business. The third part says the independent contractor must be running an independent company.
In one case, the Department of Labor considered the first worker, who specialized in historic preservation, an employee because the department considered historic preservation a core part of the business. The Vermont Supreme Court disagreed on the grounds that the company did not focus on historic preservation, so the court overturned the decision.
In the case of the second worker, the Department of Labor also said the person was an employee. The Vermont Supreme Court agreed because the worker failed the third part; the person did not run an independent company registered with the Vermont secretary of state or file income taxes as a business.
Rep. Matt Hill, D-Johnson, a former employee of the Department of Labor, said the Great Northern Construction case is one of the clearest court decisions the committee reviewed with its lawyers.
“In my opinion I think it’s pretty clear the second person is definitely an employee,” Hill told the committee. “The first guy, I can see where it’s (unclear), but I can see how he could be an independent contractor.”
Rep. Bill Botzow, D-Pownal, the chair of the House Commerce and Economic Development Committee, said the case shows that Vermont’s labor laws need to be updated.
He said the committee could pass a bill related to classification of employees versus independent contractors this year. The deadline for the House to pass a bill and have the Senate consider it is coming up in a few weeks.
Botzow has scheduled testimony for next week on three bills that deal with the classification of employees and independent contractors. Those bills are H.119, H.223 and H.323.
Botzow asked the committee to think about the following questions: “Have things changed enough that we need to do something? Don’t we need to do something? What do we need to do?”
