Historically speaking, when a business owner only desired a particular result – e.g., sheetrock erected in a residence according to established building codes – and did not need control over the details of how the work might actually be carried out, the owner could contract with an independent contractor and avoid the taxes and financial responsibilities of the employer-employee relationship.
California Generally Disfavors Independent Contractor Distinction
In recent years, however, some states – particularly California – have instituted policies that disapprove of the independent contractor relationship. Recent news reports note that firms, such as FedEx, Uber, or Lyft, have paid millions of dollars to settle allegations that they misclassified employees as independent contractors. Under a new law passed last year [AB 202], cheerleaders for professional athletic teams must be treated as employees.
Independent Contractor or Employee: What Factors Control?
What factors control whether the California worker can be properly classified as an independent contractor, rather than an employee? While the following list is not exhaustive, here are five factors to consider:
Work Performed is Integral Part of “Contractor’s” Business
In most instances, when a business “sub-divides” its core business operation, the persons who do that work are considered employees, whether or not they are so designated. This was the rationale for California’s position that FedEx Ground drivers are employees and not independent contractors. As one expert noted, when the company can tell you what color socks that you can wear to work, it’s your employer.
Who Supplies Equipment or Tools?
Generally speaking, where the worker supplies his or her own equipment or “tools of the trade,” that is an indication that the worker is an independent contractor. Where those items are supplied by the business, there is a strong notion of a true employer-employee relationship.
Is the Work Performed Skilled or Unskilled?
True contractors ordinarily possess specialized skills (e.g., plumbers, electricians, interior designers, and the like) that they utilize with little or no supervision. Where the work is of an unskilled nature, chances are high that the workers will be categorized as employees.
How Are Workers Paid by the “Contractor?”
Payment on an hourly basis almost always results in an employee designation. Where payment is on a project basis, and where there is an end to the service being provided, this may show independent contractor status.
Have You Entered into a Formal, Written Agreement?
If the parties have entered into a formal, written agreement that characterizes the worker as an independent contractor, that is a factor that can be considered. Note, however, that too many firms rely upon this factor. A court has no trouble looking past “the form,” if the practice contradicts it. If control over the worker exists to a significant degree, the designation of contractor status will not control.
Does Your Business Utilize Independent Contracts?
If your business routinely utilizes workers whom you classify as independent contractors, be aware that if (i) your intentions do not always control, (ii) you exert control over the activities of the worker, or (iii) the type of work being performed is covered by a special law, then you may be subject to fines and other damages for inappropriately classifying the workers as contractors. The guidance of an experienced legal team is a key to avoiding unpleasant and expensive surprises. CKB VIENNA LLP has a long history of representing clients in all phases of business operations. We can advise you if the designation of your workers is appropriate or risky. Our team understands the complexity of the issues, and stands ready to assist with your long-term needs and goals. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909-980-1040, or or complete our online form.