Legislature Amends “Independent Contractor” Definitions

Effective as of December 31, 2012, the definition of an “independent contractor” under Maine unemployment, and workers compensation statutes will change, under a law signed by the Governor on April 18, 2012.

The law, chapter 643 of the Public Laws of 2012, changes several sections in the Maine Revised Statutes.

It adds a penalty for misclassifying an employee as an independent contractor of $2,000 to $10,000 per violation.

It creates a multi-part test to determine “independent contractor” status for individuals who perform services, including:

1. The individual must be free from “the essential direction and control of the employing unit, both under the individual’s contract of service and in fact.”

2. The individual must have “the essential right to control the means and progress of the work except as to final results.”

3. The individual must have the opportunity for profit and loss as a result of the services being performed.

4. The individual must be customarily engaged in an independently established trade, occupation, profession or business.

5. The individual must hire and pay his or her assistants, if any, and if the assistants are employees, must supervise the details of the assistants’ work.

6. The individual must make his or her services available to “some client or customer community, even if [the] right to do so is voluntarily not exercised or is temporarily restricted.”

7. Any three of the following seven criteria must also be met:

a. The individual has a “substantive investment” in the facilities, tools, instruments, materials and knowledge used by the individual to complete the work.

b. The individual is not required to work exclusively for the other individual or entity.

c. The individual is responsible for satisfactory completion of the work and may be held contractually responsible for failure to complete the work.

d. The parties have a contract that defines the relationship and gives contractual rights in the event the contract is terminated by the other party prior to completion of the work.

e. Payment to the individual is based on factors directly related to the work performed and not solely on the amount of time expended.

f. “The work is outside the usual course of business for which the service is performed.”

g. “The individual has been determined to be an independent contractor by the federal Internal Revenue Service.”

This bill was produced by a committee of stakeholders constituted last Legislative session, when the old unemployment “ABC” test was modified pending adoption of a new standard.

Business seeking to use individuals as independent contractors have until December 31, 2012 to learn how to meet these criteria.

If you would like to learn more about complying with the new test, please feel free to contact a member of our Employment Law Team.

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