Economic-Realities Test Law and Legal Definition

Economic realities test refers to a method that determines the nature of a business transaction by examining the totality of the commercial circumstances. The test also determines if a particular instrument is an investment contract. Courts use this test in order to ascertain if a person is an employee or an independent contractor. It is also known as common law agency test or common law hybrid test.

In United States v. Bergbauer, 602 F.3d 569 (4th Cir. Md. 2010), the following are the elements of economic realities test:

1.the intent of the parties; and

2.the economic substance of the transaction.