‘Economic Realities’ Test for Determining Independent Contractor Status in Kentucky

Employers have to have workers’ compensation coverage for their employees, but not for their independent contractors. That’s the general rule. But who's an independent contractor can be anybody’s guess.

When did the Supreme Court create the test?

In 2023, the Kentucky Supreme Court adopted the six-factor “economic realities test" for distinguishing between employees and independent contractors. The court articulated its test in Oufafa v. Taxi, LLC, 664 S.W.3d 592 (Ky. 2023) (vacating and remanding an ALJ’s decision that a taxi driver who was shot by a passenger and paralyzed was not entitled to workers’ compensation benefits).

The test helps ALJs, courts, and the Worker’s Compensation Board decide whether, at the time of the injury, the claimant was an employer or an independent contractor.

What is the central focus of the test?

The central focus of the test, according to the Supreme Court, is the extent to which the worker is economically dependent on the company or other entity where she is working at the time of the injury.

What are the test’s six factors?

The economic realities test requires considering these factors:

1. The permanency of the relationship between the parties;

2. The degree of skill required for the rendering of the services;

3. The worker's investment in equipment or materials for the task;

4. The worker's opportunity for profit or loss, depending upon his skill;

5. The degree of the alleged employer's right to control the manner in which the work is performed; and

6. Whether the service rendered is an integral part of the alleged employer's business.

Can the Board and courts consider other factors?

The Oufafa case does not prohibit consideration of other factors. Thus for example, an ALJ could consider whether the parties understood their relationship to be one of employer-employee. See Falconite v. Shedwise, LLC, No. 2024-CA-1145-WC (Ky Ct. App. 06/06/25) (“while the parties' understanding of the work relationship is not explicitly listed as a factor in the economic realities test …, Oufafa does not expressly forbid any consideration of the parties' understanding”).

Does the test hinge on the percentage of the worker’s income that comes from the entity?

No. Oufafa did not require the Board and courts to make their decisions based solely on economic dependence in terms of the percentage of earnings. Instead, it calls for considering the six factors, with an overall focus on economic dependence. See Falconite v. Shedwise, LLC, No. 2024-CA-1145-WC (Ky Ct. App. 06/06/25) (affirming an ALJ’s decision that the worker, while she received 83% of her income from ShedWise, had enough autonomy and entrepreneurial characteristics to be considered an independent contractor.).

Does the workers’ freedom and flexibility count?

The Falconite case suggests that freedom and flexibility are relevant considerations if they relate to the six factors, or to the core consideration of economic dependency. For example, freedom might show that the employer’s right to control how the work is done is limited. In Falconite, the court considered the fact that the worker had a flexible schedule, was not closely monitored, was largely responsible for the quality of her work, and was free to work for other entities.

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