Vermont Independent Contractor Agreement Template
Vermont's ABC test is not unemployment only. The same three prongs are written into the wage payment law, with the burden on the employer by definition.
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Introduction
An Independent Contractor Agreement is a contract between a business and a self-employed worker covering scope, payment, ownership of the work product, and how the engagement ends. Vermont decides classification by legal test rather than by the title on the document, and there is one point about Vermont that summaries routinely get wrong. Vermont's ABC test is not confined to unemployment insurance. 21 V.S.A. 1301(6)(B) applies the three prongs to unemployment, and 21 V.S.A. 341(1) writes the same three prongs directly into the Payment of Wages subchapter, defining an employee as an individual who entered the employment of an employer where the employer is unable to show them. The burden is placed on the employer by the definition itself. Workers' compensation then runs the opposite way: no ABC test, a right-to-control inquiry, a deliberately broad statutory-employer definition, and an express bar on contracting out at 21 V.S.A. 625. The one place where drafting is decisive is the sole proprietor exclusion at 21 V.S.A. 601(14)(F)(vi), which prescribes four recitals plus a disclosure of the right to buy workers' compensation coverage and the election not to buy it. Get those wrong and the exclusion is unavailable, however the parties describe themselves.
Key Things to Know
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The wage payment law carries its own ABC test. 21 V.S.A. 341(1) defines an employee as an individual who has entered the employment of an employer where the employer is unable to show freedom from control or direction over performance both under the contract of service and in fact, service either outside all the usual course of business or outside all the places of business of the enterprise, and customary engagement in an independently established trade, occupation, profession, or business. The burden sits with the employer as a matter of definition, not of procedure.
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Unemployment insurance uses the same three prongs. 21 V.S.A. 1301(6)(B) deems services performed for wages to be employment unless and until it is shown to the satisfaction of the Commissioner that all three are met, and the Vermont Supreme Court has held that failure to produce evidence on any of the factors results in the worker being classified as an employee.
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The B prong is disjunctive here, which matters. The service qualifies if it is either outside the usual course of the business for which it is performed or performed outside all the places of business of the enterprise. Satisfying one is enough, which is materially easier on a hiring party than the versions of the B prong that require both.
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Even a disjunctive B prong has teeth. In In re Bourbeau Custom Homes, Inc., 2017 VT 51, the Court restated the standard from earlier decisions: where a worker's service is the key component of the employer's business, the employer fails that part of the test. Bourbeau also holds that a duly formed limited liability company is not an individual under 21 V.S.A. 1301(6)(B), so the ABC test does not reach payments made to the entity.
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Workers' compensation runs on different rules entirely. There is no ABC test. Courts apply the right-to-control test, 21 V.S.A. 601(3) sweeps in an owner or lessee who is virtually the proprietor or operator of the business carried on, and 21 V.S.A. 625 provides that an employer shall not be relieved in whole or in part from liability created by the chapter by any contract, rule, regulation, or device whatsoever. In Falconer v. Cameron the Court treated a lease agreement labeling the worker a contractor as exactly the kind of device that section forbids.
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The sole proprietor exclusion is a drafting mandate. 21 V.S.A. 601(14)(F) excludes sole proprietors and partners only where six conditions are met, and the sixth requires a written agreement that explicitly states the individual is not considered to be an employee under the chapter, is working independently, has no employees, and has not contracted with other independent contractors. The agreement must also include information about the individual's right to purchase workers' compensation coverage and the individual's election not to purchase it. If the individual is later found to have employees, those employees may claim benefits against either or both parties to the agreement.
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Real estate and corporate officers take different routes. 21 V.S.A. 601(14)(G)(iii) requires a written agreement explicitly stating that the licensed broker or salesperson is not considered to be an employee under the chapter and is not eligible for coverage under it, alongside licensure, commission-only pay, and non-employee tax treatment. By contrast 21 V.S.A. 601(14)(H) excludes corporate officers and limited liability company managers or members, up to four of them, only by filing an election with the Commissioner and receiving approval, which no contract recital can substitute for.
Key decisions before you file
Before you file a Independent Contractor Agreement in Vermont, a few decisions shape the document: which option to choose and what each one means. The Independent Contractor Agreement guide walks through them.
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Vermont Requirements for Independent Contractor Agreement
An employee means an individual who has entered the employment of an employer, where the employer is unable to show that the individual has been and will continue to be free from control or direction over the performance of the services both under the contract of service and in fact, that the service is either outside all the usual course of business for which it is performed or outside all the places of business of the enterprise, and that the individual is customarily engaged in an independently established trade, occupation, profession, or business. The burden is placed on the employer by the definition itself.
Services performed by an individual for wages are deemed to be employment subject to the chapter unless and until it is shown to the satisfaction of the Commissioner that all three prongs are met. The employer bears the burden on every prong, and the Vermont Supreme Court has stated that failure to produce evidence concerning any of the factors results in the Department classifying the worker as an employee.
The service qualifies where it is either outside the usual course of the business for which it is performed or performed outside all the places of business of the enterprise. Because the two limbs are joined by or, satisfying one is sufficient. The limitation established in the case law is that where a worker's service is the key component of the hiring party's business, the employer fails that part of the test.
The Supreme Court held that a duly formed limited liability company is not an individual within the meaning of 21 V.S.A. 1301(6)(B), so an employer cannot be assessed unemployment tax on money paid to such an entity and the ABC test does not reach it. The holding is confined to the unemployment definition and does not settle wage payment or workers' compensation questions.
An employer shall not be relieved in whole or in part from liability created by the provisions of the chapter by any contract, rule, regulation, or device whatsoever. The statutory-employer definition at 21 V.S.A. 601(3) separately reaches the owner or lessee of premises or other person who is virtually the proprietor or operator of the business carried on but who, by reason of there being an independent contractor or for any other reason, is not the direct employer of the workers there employed.
The services must be performed under a written agreement or contract that explicitly states the individual is not considered to be an employee under the chapter, is working independently, has no employees, and has not contracted with other independent contractors. The agreement must also include information regarding the individual's right to purchase workers' compensation insurance coverage and the individual's election not to purchase that coverage. If the individual is found to have employees, those employees may file a claim for benefits against either or both parties to the agreement.
The written agreement is only the sixth condition. The other five require that the work be distinct and separate from that of the contracting party, that the individual control the means and manner of the work, that the individual hold out as being in business for oneself, that the individual hold out to the general public and not work exclusively for one person, and that the individual not be treated as an employee for income or employment tax purposes.
A person is not deemed to be an employer for the purposes of the chapter as the result of entering into a contract for services or labor with an individual who has knowingly and voluntarily waived coverage of the chapter under subdivision (14)(F). The waiver therefore reaches back into the definition of employer, which is why the recitals in the written agreement carry weight beyond the individual's own status.
The services must be performed under a written agreement or contract that explicitly states the individual is not considered to be an employee under the chapter and is not eligible for coverage under it. The exclusion also requires licensure under 26 V.S.A. chapter 41, compensation on a commission-only basis, and treatment as a non-employee for tax purposes.
Corporate officers and limited liability company managers or members, up to four individuals, are excluded only by filing an election with the Commissioner and receiving approval. No recital in an independent contractor agreement achieves this exclusion, which distinguishes it from the sole proprietor and real estate routes where the written agreement is itself a statutory element.
Frequently Asked Questions
Two things. Vermont applies an ABC test to wage payment claims as well as to unemployment insurance, which is the point most summaries miss, and its workers' compensation act prescribes the exact statements a sole proprietor's agreement must contain before the exclusion applies. The wage side is where a hiring business is most likely to be caught out, because the ABC test appears inside the definition of employee rather than in a separate classification provision.
No. 21 V.S.A. 1301(6)(B) applies it for unemployment, and 21 V.S.A. 341(1) applies the same three prongs in the Payment of Wages subchapter. The wage version is written as a definition: an employee is an individual who has entered the employment of an employer where the employer is unable to show the three prongs. The burden is on the employer by construction of the definition itself.
Freedom from control or direction over the performance of the services, both under the contract of service and in fact. Service that is either outside the usual course of the business for which it is performed or performed outside all the places of business of the enterprise. And customary engagement in an independently established trade, occupation, profession, or business.
Yes, in one respect. The Vermont B prong is disjunctive: the service qualifies if it is either outside the usual course of the business or performed outside all the places of business of the enterprise. Satisfying either limb is enough, which is a lower bar than the conjunctive versions some states use. It still has force, because where a worker's service is the key component of the hiring business the employer fails that part of the test.
For unemployment tax it can. In In re Bourbeau Custom Homes, Inc., 2017 VT 51, the Supreme Court held that a duly formed limited liability company is not an individual within 21 V.S.A. 1301(6)(B), so the ABC test does not reach money paid to the entity. That is a narrow holding about the unemployment definition and does not automatically resolve wage payment or workers' compensation questions, and the entity must genuinely be formed and operating.
Not on its own. 21 V.S.A. 625 states that an employer shall not be relieved in whole or in part from liability created by the chapter by any contract, rule, regulation, or device whatsoever, and 21 V.S.A. 601(3) reaches a person who is virtually the proprietor or operator of the business carried on. In Falconer v. Cameron the Court treated a lease agreement labeling the worker a contractor as precisely the sort of device the statute forbids.
21 V.S.A. 601(14)(F)(vi) requires a written agreement that explicitly states the individual is not considered to be an employee under the chapter, is working independently, has no employees, and has not contracted with other independent contractors. The agreement must also include information regarding the individual's right to purchase workers' compensation insurance coverage and the individual's election not to purchase that coverage. Five other substantive conditions in 601(14)(F) must be met alongside it.
The statute anticipates it. 21 V.S.A. 601(14)(F)(vi) provides that if the individual who is party to the agreement is found to have employees, those employees may file a claim for benefits under the chapter against either or both parties to the agreement. The recital about having no employees is therefore not a formality, and a hiring business should confirm it remains true rather than relying on a signature given at the outset.
Not by contract. 21 V.S.A. 601(14)(H) excludes corporate officers and limited liability company managers or members, up to four individuals, only where an election is filed with the Commissioner and approved. A recital in an independent contractor agreement does not achieve the same result, which is a useful contrast with the sole proprietor and real estate exclusions where the written agreement is itself an element. Attorney review is an option where a business is choosing between these routes.