A recent article by Robert W. Wood appeared in Business Law Today entitled "Defining Employees and Independent Contractors: Don’t Try This at Home!". Business Law Today is the monthly newsletter magazine put out to business lawyers who are members of the Business Law Section of the American Bar Association. The article is of interest to me because I have had many friends, colleagues, clients, and family members recently ask what their classification status is as it relates to their employment situation. Mr. Wood does a good job of spelling out what distinguishes a person from an independent contractor and an employee, and I wanted to share it on my blog.
Mr. Wood contends that more often than not, the line between independent contractor and employee is blurred, and far more homogenous than one might think. This "blur" can be boiled down to the simple fact that employers "mischaracterize" what exactly the duties and responsibilities are for the persons they wish to hire. Mr. Wood goes on to state that the mischaracterization can undermine real independent contractor relationships. The problems associated with characterizing a persons employment are compounded by the fact that the laws are vague, serve different purposes, interpreted differently in different courts, and enforcement criteria associated with administrative agencies vary from agency to agency.
The generally accepted standard for independent contractor versus employee status is the common law "right-to-control standard." In 1947, the U.S. Supreme Court, in U.S. v. Silk, ruled that the "economic reality test" would be the standard criteria for determining control over an individual. However, Congress became concerned that the Court’s ruling was too broad and that the ramifications of the decision could bring the Social Security system to ruins (e.g. bankruptcy). Thus, Congress adopted the 1948 Gearhart Resolution, which expressed a preference for a narrower common law definition. From that point forward, a division on interpretation ensued between the administrative agencies, legislatures, executive offices, and courts. The results from this were numerous inconsistencies which would define a person, in one respect, as an employee, and, in another respect, as an independent contractor.
Mr. Wood correctly states that it is extremely important to classify worker’s correctly, because the determination has far reaching consequences. If an individual is characterized as an employee, then he/she can become eligible to sue under the Fair Labor Standards Act, Title VII of the Civil Rights Act, the Age Discriminiation in Employment Act, the National Labor Relations Act, and many others. Additionally, he postulates:
- The true relationship and the true practice between the worker and the company will control the worker status question. Mere words in a contract are generally not determinative, as worker status determinations must generally take into account the totality of the situation. Many companies have written contracts purporting to establish independent contractor relationships, only to find that their actual practice involves many actions (and many controls over the worker) that fly in the face of the contract language. To characterize the relationship one must look beyond the language of the contract.
Moreover, some courts have discounted written contracts when the facts suggest they were "adhesion" contracts signed by unsophisticated workers with no bargaining power. Although the language of the contract is relevant, so is the pattern of practice between worker and employer. The courts will generally analyze all the facts and circumstances surrounding the relationship.
The article goes on to make many other relevant points regarding characterization status of a worker. Regardless, the most basic point to remember is that: when negotiating and signing an independent contractor agreement, make sure the employer understands what that means and get it in writing. An attorney can assist a person in the negotiating phase of that agreement to help them understand what exactly it is they are "agreeing" to status-wise. Then, periodic followup with the employer is a good way of doing due diligence in maintaining that status relationship.
To read Mr. Wood’s article in full, click here: Defining Employees and Independent Contractors, Don’t Try This at Home!
