Two main tests for determining whether a worker is an employee or an independent contractor
[employee v. independent contractor]
Common law test
Economic realities test
Common Law Test: 12 factors
[introduction: employee v. independent contractor]
12 factors from Reid (none are dispositive; looking for control) (note: burden is on the employer to show worker is an independent contractor)
- The skill required
- The source of the instrumentalities and tools
- The location of the work
- The duration of the relationship between the parties
- Whether the hiring party has the right to assign additional projects to the hired party
- The extent of the hired party’s discretion over when and how long to work
- The method of payment
- The hired party’s role in hiring and paying assistants
- Whether the work is part of the regular business of the hiring party
- Whether the hiring party is in business
- The provision of employee benefits
- The tax treatment of the hired party
Economic Realities Test: 6 factors
[introduction: employee v. independent contractor]
Six factors from Secretary of Labor v. Lauritzen (none are dispositive)
1. Control – the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed
2. Profit and Loss – alleged employee’s opportunity for profit or loss depending upon his managerial skill
3. Capital Investment – alleged employee’s investment in equipment or materials required for the task or employment of workers
4. Degree of Skill Required – whether the service rendered required special skill
5. Permanency – degree of permanency and duration of the working relationship
6. Was it an Integral Part of D’s Business – extent to which the service rendered is an integral part of the alleged employer’s business
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NOTE: Factors are used to show dependence of the (alleged) employee on the employer
Which statutes note a specific test to use?
[introduction: employee v. independent contractor]
- FLSA – economic realities
- NLRA – common law
- Employment Discrimination – common law and economic realities (depends on jurisdiction)
- ERISA – common law and IRS 20-factor test
- Social Security/Medicare – common law
- Other purposes – common law, unless definition in statute is more expansive
Unique situations: how do you classify partners, volunteers, and prisoners?
[introduction: employee v. independent contractor]
- Partners are considered employers
- Volunteers are usually not employees (but: is there some value for their work and could that be the equivalent?)
- Prisoners are not employees
Importance of “covered employees”
[introduction: employee v. independent contractor]
Not only does the person have to be an employee, but they have to be covered by the statute in question (e.g., sometimes the statutes exclude part-time employees, home employees, leased workers, contingent workers, etc.)
Why is it important to know whether a worker is an employee or an independent contractor?
[introduction: employee v. independent contractor]
Liability: Employer is responsible for an employee’s reasonably foreseeable actions that are within the scope of the employee’s job under the doctrine of respondeat superior
This is not true of independent contractors – no liability (unless ultra-hazardous, etc.)
Employees usually get more benefits (i.e., insurance, time off, etc.)
Employers face tax consequences if they mislabel an employee as an independent contractor (owing back taxes, workers compensation tax, unemployment tax, etc.)
How the employment at will doctrine works
[introduction: employment at will doctrine]
An employment agreement for an indefinite time period is presumed to be terminable for any (lawful) reason
Why is it important to know the employment at will doctrine?
[introduction: employment at will doctrine]
This is the modern presumption in American employment law
Common law rule that establishes a presumption that employment is for an indefinite period of time and may be terminated by either the employee or the employer
It is the default rule in every state except Montana
