Determining Law Firm Employee Classification Through the ABC Test

Many law firms are consumers of contract labor. This may take the form of “of counsel”, contract attorneys (e.g., attorneys hired to handle voluminous discovery requests) and other project-based support workers (e.g., bookkeeping, IT, marketing). Traditionally, the individuals rendering these services have been treated as independent contractors, per IRS guidance.

In recent years, many states have decoupled from the IRS’ guidance and adopted “the ABC Test” to determine who may be considered an independent contractor and who must be treated as an employee. Under the ABC Test, an individual may only be classified as an independent contractor if:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The worker performs work that is outside the usual course of the hiring entity’s business; and,
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Over 30 states have adopted some aspects of the ABC Test to determine who must be classified as an employee. 

With regards to law firms, lawyers who hold the title “of counsel” or are hired on a contract basis likely must be treated as employees under the ABC Test. Likewise, individuals hired to work on client-related matters and firm business may need to be treated as employees as well. Potentially, even an expert witness may need to be treated as an employee under the ABC Test as they are not free from the control and direction of the law firm (e.g., they are told when and where to appear) and the work is performed in the course of the law firm’s business. 

Law firms operating in states that have adopted the ABC Test should analyze which workers can be treated as independent contractors and which workers must be classified as employees.

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For more information on this topic, please contact a member of Withum’s Law Firm Services Team.