Whether a worker is an independent contractor (“IC”) or an employee (“EE”) is a question that has come before numerous California courts and has given rise to countless lawsuits on behalf of those who feel they have been wrongfully misclassified. A favorable decision one way or another has a monumental effect on an employer’s liability, not to mention corporate structure and profit margins. Alas, the laws pertaining to this issue can be quite equivocal and are heavily rooted in fact.
How do you know when you are being misclassified as an IC? Several California courts have released opinions outlining the pertinent factors which determine a worker’s status as either an IC or EE.
The seminal case of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1998) 48 Cal.3d 341, (“Borrello”) concluded that the most important factor in determining whether a worker is an employee or an independent contractor was control. Specifically, whether the employer had the right to control the manner and means of accomplishing the result. (Borello, at 350; See, also Tieberg v. Unemployment Ins. Appeals Board, (1970) 2 Cal. 3d 943, 946; Estrada v. FedEx Ground Package System, Inc., (2007) 154 Cal. App. 4th 1, 2). The emphasis here is controlling the manner and means of the work to be performed and not merely controlling the resulting product—whatever that may be. Often times a well-defined employment policy and/or procedure will weigh in favor of finding control over the manner and means, especially if an employer trains the worker to perform tasks in a particular way. This test, coined in the field as the “Control Test”, has been given the most credence in any IC versus EE determination.
However, the case of Fireman’s Fund Ins. Co. v. Davis, (1995) 37 Cal.App. 4th 1432 (“Fireman’s Fund”) in its interpretation of Automatic Canteen Co. v. State Board of Equalization, (1965) 238 Cal.App.2d 372 (“Automatic Canteen”) illustrates the attenuated application of the Control Test specifically to the manner and means of the work and notes that control over the result will not change the worker’s status. “[The] owner may retain a broad general power of supervision and control as to the results of the work so as to insure satisfactory performance of the independent contract—including the right to inspect, the right to stop the work
without changing the relationship from that of owner and independent contractor or the duties arising from that relationship.” (Fireman’s Fund, p. 1442-1443). For the most part, this notion is commonsensical. An employer will almost always control the resulting work product to ensure it is on par with their (the employer’s) expectations. It is when the employer controls the method of the work to be done that will give rise to a finding of control. This, however, creates even more ambiguity.
Courts have also found that the “Control Test” is often little help in evaluating a variety of service arrangements and have thus adopted alternative factors that should be weighed in a worker’s status determination. A multi-factor test, also known as the “Economic Realities Test”, lists eight more factors which, in any combination, can lead to the trier of fact to conclude the worker is indeed an EE and not an IC. These factors include:
- Weather the one performing the services is engaged in a distinct occupation or business;
- The kind of occupation, with reference or wether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision (doctors, lawyers, etc...)
- The skill required in the particular occupation;
- Whether the principal or the worker supplies the instrumentalities, tools, and the palce of work for teh person doing the work;
- The length of time for which the services are to be performed;
- The method of payment, whether by the time or by the job;
- Whether or not the work is part of the regular business of the principal;and
- Whether or not the parties believe they are creating the relationsip of employer -emplyee?(Borello at p.351)
Neither of the above factors, alone, is dispositive of the issue. Their weight depends on the combination in which they are used. In other words, the court will weigh the totality of the circumstances in its final determination applying both the Economic Realities Test and the Control Test discussed above. Good facts in this regard are the worker’s best friend.
Another problem that arises from a pragmatic stand point is information. How can an aggrieved worker learn about these rules without having to resort to litigation? As the issue becomes more convoluted, several government agencies have posted information on their websites in an effort to keep the public informed. Even the Internal Revenue Service (“IRS”) has posted the different elements on their website. However, merely knowing the rules is not enough. Facts are everything.
The industry involved, type of work, venue and numerous other factors all play a major role in the final status determination by the court. The up side to all of this is that as the courts interpret the facts and decide case after case; ample precedent will be set for a particular industry’s reference and help decipher the law/fact analysis.
For all other fields, employers must act in the abundance of caution as they walk a fine line between maximizing their profits and subjecting themselves to liability (often on a class-wide basis). If employers fail to take note of these fact-intensive guidelines, workers will continue to sue and the surge of misclassification suits will thrive.