On May 8, the New Hampshire Supreme Court dealt a blow to businesses that hire one-person “independent contractors” on a regular basis to help them perform the usual scope of their services. The case did not arise in the construction setting, but it has implications for subcontractors.
Appeal of Niadni, Inc., 166 N.H. 256 (2014), ruled that a musician was an employee of the resort whose night club he had performed at nearly three hundred times in a two year period, even though he performed at other venues as well during this time. The parties negotiated a pay rate for his services, and he was paid weekly for his performances. He provided his own instruments and selected the songs he performed; the resort provided the stage and sound system. After the relationship terminated he filed for unemployment benefits with the Department of Employment Security. Following a hearing, a DES tribunal concluded that he was not an employee under the relevant statute, RSA 282-A:9, III, which provides:
"Services performed by an individual for wages shall be deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the commissioner of the department of employment security 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."
Specifically, the tribunal focused on item B of this ABC test, and concluded that the resort was in the business of, among other things, “coordinating” entertainment, which it distinguished from “the business of singing, playing instruments, or other forms of entertainment.”
The musician appealed to the DES Appellate Board, which had a very different view, finding that tribunal’s decision regarding the coordination of entertainment services was a “distinction without substance.” It awarded benefits. The resort then appealed to the Supreme Court, pointing to all the other things it did besides provide musical entertainment and arguing that these facts made the musician’s services “outside the usual course of the business for which such service is performed.” While the Court acknowledged that this “can be an elusive concept,” it ultimately adopted a standard that doomed the resort’s appeal: “[i]f . . . an enterprise undertakes an activity, not as an isolated instance but as a regular or continuous practice, the activity will constitute part of the enterprise’s usual course of business irrespective of its substantiality in relation to the other activities engaged in by the enterprise.” Under this standard, it didn’t matter to the Court that the musician “was free to perform, and did perform, for other entities,” nor that its ruling “could encourage New Hampshire businesses to refrain from hiring those individuals and thus jeopardize the employment prospects of independent musical artists.”
Suppose you have a painting business or a drywall business, acting as a sub to various GC’s. If you hire the painters or drywallers who do the actual work on an independent contractor basis, you’re going to want to keep using the good ones over and over, and if you are providing them steady work they may want that as well. At some point the regularity of the relationship may convert these independent contractors into your employees, regardless of whether they furnish their own tools, regardless of whether they also work for others from time to time―perhaps even regardless of whether they buy the paint or the wallboard. While your business may entail a lot more than just applying paint to surfaces or hanging wallboard on studs, under the standard adopted by Appeal of Niadni, Inc., their services are unlikely to be deemed “outside the usual course of the business for which such service is performed,” which would make them your employees at least for unemployment compensation purposes (the ABC test is not used for all employment determinations, e.g., workers compensation).
Appeal of Niadni, Inc., 166 N.H. 256 (2014), ruled that a musician was an employee of the resort whose night club he had performed at nearly three hundred times in a two year period, even though he performed at other venues as well during this time. The parties negotiated a pay rate for his services, and he was paid weekly for his performances. He provided his own instruments and selected the songs he performed; the resort provided the stage and sound system. After the relationship terminated he filed for unemployment benefits with the Department of Employment Security. Following a hearing, a DES tribunal concluded that he was not an employee under the relevant statute, RSA 282-A:9, III, which provides:
"Services performed by an individual for wages shall be deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the commissioner of the department of employment security 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."
Specifically, the tribunal focused on item B of this ABC test, and concluded that the resort was in the business of, among other things, “coordinating” entertainment, which it distinguished from “the business of singing, playing instruments, or other forms of entertainment.”
The musician appealed to the DES Appellate Board, which had a very different view, finding that tribunal’s decision regarding the coordination of entertainment services was a “distinction without substance.” It awarded benefits. The resort then appealed to the Supreme Court, pointing to all the other things it did besides provide musical entertainment and arguing that these facts made the musician’s services “outside the usual course of the business for which such service is performed.” While the Court acknowledged that this “can be an elusive concept,” it ultimately adopted a standard that doomed the resort’s appeal: “[i]f . . . an enterprise undertakes an activity, not as an isolated instance but as a regular or continuous practice, the activity will constitute part of the enterprise’s usual course of business irrespective of its substantiality in relation to the other activities engaged in by the enterprise.” Under this standard, it didn’t matter to the Court that the musician “was free to perform, and did perform, for other entities,” nor that its ruling “could encourage New Hampshire businesses to refrain from hiring those individuals and thus jeopardize the employment prospects of independent musical artists.”
Suppose you have a painting business or a drywall business, acting as a sub to various GC’s. If you hire the painters or drywallers who do the actual work on an independent contractor basis, you’re going to want to keep using the good ones over and over, and if you are providing them steady work they may want that as well. At some point the regularity of the relationship may convert these independent contractors into your employees, regardless of whether they furnish their own tools, regardless of whether they also work for others from time to time―perhaps even regardless of whether they buy the paint or the wallboard. While your business may entail a lot more than just applying paint to surfaces or hanging wallboard on studs, under the standard adopted by Appeal of Niadni, Inc., their services are unlikely to be deemed “outside the usual course of the business for which such service is performed,” which would make them your employees at least for unemployment compensation purposes (the ABC test is not used for all employment determinations, e.g., workers compensation).
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