Have You Really Lost “Control” Over Your “Independent Contractors”?

Let’s talk for a bit about a rather hot topic lately—worker classification. We begin with a joke. Rich Hall, the comedian, has one about how to tell what economic class you’re in:

“When you go to work in the morning, if your name is on the building—you’re rich, if your name is on your desk—you’re middle class, and if you’re name is on your shirt—you’re poor.”

You might be asking what on earth this has to do with worker classification. Well, in thinking about how a worker is classified, I modify the joke a bit (sorry, Rich) to figure out whether a house painter is an employee or an independent contractor. Let’s look at whose name is on the painter’s truck. If the painter’s name is on the truck, then she is very probably an independent contractor; if, on the other hand, your name is on the painter’s truck, then she’s very probably your employee.

Of course, things aren’t always quite that simple—just ask Uber. According to Uber, the “sharing economy” car service, its drivers are independent contractors. Uber has argued that the whole reason drivers come to Uber is in order to have “flexibility and control” over the services they provide. As has been widely reported, the California Labor Commission disagreed, finding that one driver was an employee, and now a federal judge in California is allowing a class action of Uber drivers to go forward alleging that they are likewise employees. That decision is on appeal.

The ultimate result will have big implications, not just for the “sharing economy,” but also for any business looking to utilize “independent contractors.” As any employer knows, having employees comes with certain costs—minimum wage, overtime and social security contributions to name a few. And let’s not forget compliance with a whole host of state and federal regulations that only apply to employees. As employers also know, the consequences of misclassification can be very expensive. So this is an important question!

If nothing else, recent events make clear that worker classification is being closely scrutinized—by workers, agencies and courts alike. Not that it has ever been enough, but now more than ever it is really not enough to simply classify a worker as an independent contractor and have the worker sign an agreement stating as such.

Instead, employers must take a hard look at the services being provided and the level of “control” exerted over the workers providing those services. Yes, another of those rather vague legal terms, like “reasonable” or “good faith.” But the amount of “control” an employer exerts has long been the key test for determining how to classify a worker. Now, how do we evaluate whether a worker looks more like an employee or independent contractor? For years, courts have looked to some variation of the following types of factors:

• the degree of control the alleged employer exercised over the individual;
• the extent to which the services rendered by the individual are an integral part of the alleged employer’s business;
• the extent of the relative investments of the individual and alleged employer;
• the degree to which the individual’s opportunity for profit and loss is determined by the alleged employer;
• the permanency of the relationship;
• the skill required in the claimed independent operation.

In the case of a delivery company, the court ruled that its drivers were employees because the company controlled everything from their routes to their trucks to their uniform. From what I understand, Uber has certain requirements for the cars that its drivers are allowed to use. By contrast, our painter with her own name on the truck can drive whatever type of truck she wants.

But what about someone providing IT services to your company on an “independent contractor” basis? Does that person operate their own tech company and provide services for numerous clients, or are you really controlling where, when and how she performs those services? Or how about an insurance broker who signed a contract stating she’s an independent contractor and is only paid commissions reported on an IRS Form 1099? If the broker is only selling the company’s insurance products, is provided training, marketing materials and office support, and is required to attend regularly scheduled sales meetings, is she really an independent contractor? These are not easy questions to answer.

For a start, I would propose that, legal tests aside, employers use good ol’ fashioned common sense (yes lawyers use that, too). Take a good look at the services that your “independent contractor” is providing and think about whether her name should be on the truck or yours. The answer might cost you more in the short-term, but could save you far more down the road. And if you’re not sure, well, that’s what we lawyers are here for.

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Post by Mark Brookstein

Focusing on commercial litigation and employment law, Mark Brookstein enjoys a broad and diverse practice. In addition to litigating contract, real estate, business torts, employment and other commercial matters, Mark regularly counsels businesses on matters ranging from risk management and best practices to regulatory compliance and internal investigations.

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