EMPLOYEE OR INDEPENDENT CONTRACTOR?
Whether a person is an employee or independent contractor has several important implications:
Wage and Hour and other Labor Code Restrictions Applicable to Employees
Employers are Liable to Third-parties for Injuries Caused by the Negligence of Employees
Employers Avoid Employee-Withholding Tax
Workers’ Compensation Insurance is Required for Employees
EEOC, OSHA, ADA and Other Regulations Applicable to Employees
CALIFORNIA ANALYSIS – Common Law + Borello Factors
There is no “bright line” distinction between an employee and an independent contractor. The characterization of the relationship ultimately turns on the extent to which the employer retains control over the individual.
Generally, whether the person is an employee or independent contractor is a question of fact that depends on the evaluation of many factors, most notably whether the putative employer has the right to control not only the result of the work, but the means by which the work is performed (S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341, 350-351).
California law does not define the term “independent contractor” and the employer’s characterization is not determinative. Under California’s statutory framework, there exists a rebuttable presumption in favor of finding an employment relationship (see Labor Code § 3353, 3357) and there are many cases that are instructive on the subject.
Multi-Factor Borello Test – Economic Realities:
In the Borello case, the California Supreme Court made it clear that the most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. Additional factors to be evaluated include:
-Whether the person performing services is engaged in a business distinct from the principal
-Whether or not the work is part of the regular business of the principal/employer
-Whether the principal/employer supplies the tools necessary to perform the work
-Whether the kind of work done is typically done by employees
-The alleged employees opportunity to profit from the work done
-The method of payment, whether by time or by the job
-Whether the parties believe there is an employment relationship may have some bearing, but it is not determinative because the relationship is based on objective criteria.
Even where the employer does not control the work, an employer-employee relationship will be found if (1) the principal retains pervasive control over the work as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288).
Whether the worker receives a 1099 (as opposed to a W-2) makes little difference in the analysis.
Courts generally lean toward finding an employment relationship, even where most of the factors above tend to argue for an independent contractor status. In one such case, the court held that a freelance journalist who was paid $75 per story, received a 1099, and had full-time employment elsewhere was entitled to pursue an employment-related claim. Ali v. L.A. Focus (2003) 112 Cal. App. 4th 1477.
Another critical factor is whether the employer/principal has the power to discharge the worker. Court’s have held that the ability to fire at will is particularly strong evidence of an employment relationship. Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 76. Perhaps no single circumstance is more conclusive to show the relationship of an employee than the right of the employer to end the service whenever he sees fit to do so. Burlingham v. Gray (1943) 22 Cal.2d 87, 99-100.
FEDERAL ANALYSIS – Economic Realities Test
The California decision are not binding on federal courts when violations of federal law. However, federal analysis relies on a series of decisions that apply similar criteria.
The Internal Revenue Service (IRS) uses a multi-factor “control” test for tax purposes.
The Fair Labor Standards Act (FLSA) 29 U.S.C. § 201 et seq. sets forth various factors to determine the existence of an employment relationship, and the Department of Labor (DOL) provides additional guidance on the federal level.
One problematic consequence of the multiple tests is that a person may be an “employee” for tax purposes and an “independent contractor” for labor law purposes.
Who Decides?
Whether someone is an employee or an independent contractor is a mixed question of law and fact. The issue can be argued on many levels – and the outcome may will be difficult to predict where the facts can lead to ambiguous conclusions. The employer’s classification does not determine the answer, but the issue will likely be disputed in any close case.