Marketplace Platforms: Applying the ABC Test to Determine Employee v. Independent Contractor for Unemployment Compensation?

In our current economy, many businesses operate as a platform for linking people wanting a service, such as house cleaning or rides, with people who can perform such services.  Such business models, often called “marketplace platforms,” typically seek to retain people to perform such services as independent contractors, having them sign an independent contractor agreement and paying them for the services they provide to customers to the site.  There are many ways to structure a marketplace platform, from simply operating like an electronic message board to having more of a role in the service posting/performance structure.

Recently many states have introduced legislative bills that deem workers on marketplace platforms to be independent businesses/contractors and not employees of the company.  Such legislation has passed in 2016 in Arizona and is being proposed in Florida, Indiana, Iowa, Kentucky, Tennessee, Georgia, Colorado and Utah.  Thus far, New Hampshire has not had any new legislation passed on marketplace platforms and thus the analysis of whether the people providing services are independent contractors is controlled by RSA 282-A.

Under RSA 282-A:9, services performed by an individual for wages shall be deemed employment for unemployment security purposes, unless it is shown that the business/individual meet a three part test (often referred to as the “ABC test”). The fact that the parties have agreed that such relationship is one of independent contractor will not be determinative on the analysis.  Specifically, under RSA 282-A:9, III, the ABC test involves a finding that:

(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.

Given this test, marketplace platforms and service providers would be wise to focus on subparagraph (a).  Marketplace platforms should consult with legal counsel to make sure that the terms and conditions imposed on the business/individual performing the service of the marketplace platform meet the “free from control or direction over the performance of such services” both in the contract and in the practice.  Likewise, service providers, in determining whether to challenge independent contractor status, should also focus on the control and direction over performance.  For example, the platform dictating the how service jobs are performed or the time period that a person must provide services would support an employer/employee relationship.

In addition, with regard to subparagraph (b), if the business has a brick and mortar building, the parties should determine whether the structure meets the ABC test.  If people are providing the marketplace service from the physical location, there is a greater chance that such relationship will be deemed employer/employee rather than independent contractor.

Finally, while many marketplace platforms have competition, such businesses need to carefully consider whether they want non-competition provisions that provide that service providers for one marketplace platform cannot provide the same service for a competitor.  Such provisions typically support a finding of an employee/employer relationship rather than an independent contractor one.

About the Author: Jennifer Eber

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