The ABC test is a test that is used in several jurisdictions (eg California, Massachusetts, New Jersey) to distinguish employees from independent contractors. The ABC test has three prongs. An employee is only considered to be an independent contractor who is not covered by the wage rules if the hiring organization specifies each of the following conditions. * that the employee is free from the control and direction of the employer in connection with the performance of the work, both in contract for such work and in fact * that the employee performs work that is outside the ordinary course of business of the employing organization * That the employee is usually engaged in an independently established profession, an occupation or business of the same nature as the work performed for the employing organization The ABC test makes it difficult for companies to correctly classify workers as independent contractors, as they must meet each of the criteria. Thus, jurisdictions that use the ABC test are considered to be favorable to plaintiff lawyers filing claims on behalf of employees.
Insurance is a contractual relationship that arises when one party (the insurer), for a fee (premium), agrees to compensate the other party (the insured) for losses caused to a certain subject (risk) caused by certain unforeseen circumstances (hazards or dangers). The term ‘guarantee’, commonly used in England, is considered synonymous with ‘insurance’.
The 10/10 Rule is a matter of analyzing and demonstrating the transfer of risk as a precondition for the use of reinsurance accounting, which was codified in the early 1990s with the adoption of Financial Accounting Standard (FAS) 113 (and its statutory counterpart, SSAP 62). FAS 113 itself was a response to alleged abuses and set the standard for testing whether something should be called an insurance contract. FAS 113 required that the transfer of risk be demonstrated by comparing the present value of the cash flows associated with the contract and, in particular, by exceeding certain thresholds of “significance” of risk. The thresholds, often referred to as the 9a and 9b tests, are: 9a. The reinsurer assumes significant insurance risk under the reinsured parts of the underlying insurance contracts. 9b. It is possible that the reinsurer could suffer a significant loss from the transaction. While neither “significant” nor “reasonably possible” was defined in this context, standard rules of thumb quickly emerged in the implementation of FAS 113. The most commonly cited is the “10/10 Rule”. This rule states that a contract reaches a threshold if there is at least a 10 percent chance that it will suffer a loss of 10 percent or more in present value (expressed as a percentage of the contract premium ceded).