Thursday, January 3, 2013


New definition of "employee" can be costly


In an article on the JDSupraLawNews Web site ( titled New Definition Of "Employee" Promises To Result In New Workers' Compensation Risk And Cost To Maine Employers, employers in Maine are warned to expect higher workmen's compensation payments to insurers.

"Unless the employer can satisfy a very strict multi-part test that defines “independent contractor.” the test also applies for purposes of unemployment insurance, it will have a far greater effect in the area of workers’ compensation, " the article claims.

While this currently is limited to Maine, the trend may be followed by other states. Litigation also can be expected, and that, too, can encourage, or discourage, other entities' legislation.

Maine's criteria to determine if a contractor really is a contractor is set forth at .

According to the document, WCB 266:

13-A. Independent contractor. A person who performs services for remuneration is presumed to be an employee unless the employing unit proves that the person is free from the essential direction and control of the employing unit, both under the person's contract of service and in fact and the person meets specific criteria. In order for a person to be an independent contractor:

A. The following criteria must be met:

(1) The person has the essential right to control the means and progress of the work except as to final results;
(2) The person is customarily engaged in an independently established trade, occupation, profession or business;
(3) The person has the opportunity for profit and loss as a result of the services being performed for the other individual or entity;
(4) The person hires and pays the person's assistants, if any, and, to the extent such assistants are employees, supervises the details of the assistants' work; and
(5) The person makes the person's services available to some client or customer community even if the person's right to do so is voluntarily not exercised or is temporarily restricted; and

B. At least 3 of the following criteria must be met:

(1) The person has a substantive investment in the facilities, tools, instruments, materials and knowledge used by the person to complete the work;
(2) The person is not required to work exclusively for the other individual or entity;
(3) The person is responsible for satisfactory completion of the work and may be held contractually responsible for failure to complete the work;
(4) The parties have a contract that defines the relationship and gives contractual rights in the event the contract is terminated by the other individual or entity prior to completion of the work;
(5) Payment to the person is based on factors directly related to the work performed and not solely on the amount of time expended by the person;
(6) The work is outside the usual course of business for which the service is performed; or
(7) The person has been determined to be an independent contractor by the federal Internal Revenue Service.

Maine's definition may also put employers in jeopardy of long-term contractors making claims for vacation and other benefits. A situation such as this happened years past at Lucent Technologies when a long-term contractor demined vacation time. While I do not recall the outcome of the litigation, I do know Lucent changed its contractor policy and allowed a maximum contract duration of 6 months. As a consultant I encountered this with other clients as well, albeit it was not universal.

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