How Workplace Laws Influence
Contractor vs. Employee Controversies
Robert W. Wood
There are many legal tests The dis- relationship, etc. These and other factors are used as
for assessing whether a tinction is earmarks of employment.
worker is an independent important A court or agency must determine the
contractor or an employee. under fed- worker’s true status by evaluating the governing
eral, state contract and business records. If the worker is micro-
and local tax laws, affects contract and tort liability managed and subject to the employer’s unfettered
exposure, and raises federal and state labor law control, an “independent contractor” label in a
compliance issues. Plus, it can impact insurance, contract will probably not save the worker from
employee benefits, and myriad other issues. being recast as an employee.
Worker classification is not determined
merely by labels. Various government agencies and Legal Requirements
the courts can make their own assessment of who is Worker classification involves a fact-intensive
an employee. In appropriate cases, the government determination. Because virtually everything is
can retroactively recharacterize workers, so the relevant in making the characterization determina-
stakes can be huge. The courts have long been tion, legal and regulatory requirements impacting the
divided on how to define and interpret these rules. working relationship should also be considered. For
Even today, there is no single test for determining example, suppose a trucking company mandates that
worker status. its drivers drive for a maximum of eight consecutive
The IRS and a variety of state and federal hours, then taking required rest.
agencies make worker status determinations, so a This rule may appear to be one facet of
worker may be classified as an employee for one employer control, which, along with myriad other
purpose and as an independent contractor for contract provisions, rules and practices, should be
another. Quite apart from tax status, workers relevant in assessing whether the putative employer
classified as employees have rights under federal has exercised (or reserved the right to exercise)
labor and employment laws. Consequently, issues of sufficient control to dictate employee status.
statutory coverage and liability may turn on whether However, if the eight hour driving maximum
a person is found to be an employee. emanates from federal or state transportation rules,
can this requirement fairly be attributed to the
Gradients of Control company as a badge of control? In the few cases to
Although tests for assessing worker status have consider such a point, the answer appears to be no.
differing formulations, the tighter the company’s Of course, employers may subject their
right to control the worker, the more likely he will be workers to requirements that exceed prescribed
considered an employee. Most of the classification regulations. For example, suppose an employer
methodologies also evaluate the degree to which the requires workers to check-in with the company not
worker is integrated into the company’s operations, less than once every 24 hours because federal or state
the worker’s special skills, the longevity of the law imposes such a requirement. Suppose, then, that
relationship, the company’s ability to terminate the the applicable law changes to require workers to
check-in only once every 48 hours. If the employer is independent contractor status, but Missouri found
ignorant of this change, and continues to require 24 the drivers to be employees. On appeal, because K&D
hour check-in, should this enhanced level of “control” could require drivers to take random drug tests,
be considered in assessing the worker relationship? Missouri claimed this indicated employment.
Does it matter if the employer exercised due The appellate court ruled that the company
diligence in attempting to keep itself abreast of such had not required more from its workers than the law
legal and regulatory changes? Does it matter if the required. Thus, the drug tests done could not be
worker’s status is being examined two weeks after considered control. However, as the remaining
the pertinent legal change was made, or five years factors demonstrated an employer/employee
after the legal change? relationship, the court held the truck drivers to be
How one answers these questions is employees.
important, and is to some degree subjective. Some In Air Transit v. National Labor Relations Board, a
degree of employer rule-making beyond bare legal cab company sought reversal of an NLRB decision
requirements should not necessarily constitute ruling its cab drivers to be employees. Air Transit
sufficient control to import employee treatment to was a Virginia corporation providing taxi cab servic-
the worker. Nuances will be important. es at Dulles Airport. The Federal Aviation
Administration (“FAA”) gave Air Transit the
Case Law And Legal Control exclusive right to operate taxicab service at Dulles.
Although one may first think of the IRS in worker Air Transit used the services of approximate-
status controversies, it does not appear that this ly 100 taxicab drivers who provided their own
“legal control” issue has been expressly discussed in vehicles and picked up passengers from a designated
tax cases. It has, however, come up in federal labor cab line. Air Transit put a uniformed dispatcher at
and employment law decisions. For example, in the head of the line to direct passengers and help
National Labor Relations Board v. Associated Diamond Cabs, with their luggage. Air Transit charged drivers $72 a
Inc., the court determined whether Miami taxi drivers week for participation in the feed line, but Air
were independent contractors or employees. City of Transit received no share of the drivers’ earnings.
Miami regulations required taxi drivers to fill out The drivers did not report their earnings to
“trip sheets” to record all trips, their origin and Air Transit, did not keep trip sheets, manifests or
destination, fares charged and the time of each trip. other accounts of their earnings, and had control over
At the end of each day, drivers submitted their trip their own schedules. Drivers did not receive benefits,
sheets to the company, which were retained for city vacation time, sick leave, workers’ compensation or
inspection. unemployment insurance from Air Transit. All
The court found that such trip sheets did not drivers were personally responsible for their own
evidence control by the company. In fact, the court accounting and self-employment taxes, and received
said government regulations constitute supervision no training.
not by the employer, but by the city. In effect, the law However, Air Transit drivers were subject to
controlled the driver, not the employer. As a result, many rules, some mandated by Air Transit’s contract
the court found that the regulations failed to with the FAA, some required by Virginia law. Drivers
evidence control by the company. had to use a radio dispatch system, wear name tags,
Similarly, in K&D Auto Body, Inc. v. Division of maintain taxicabs in safe operating condition, display
Employment Security, the court considered federal drug certain language and Air Transit’s telephone number
testing laws and worker classification. K&D required on the taxicab, display rate information, possess a
its drivers to sign agreements affirming their valid driver’s license, and license their vehicles for use
in Louden County, Virginia. Air Transit also enforced ing taxi cab drivers required taxi cabs to be operated
rules that were not required by the FAA contract or regularly to meet public demand for service, the
Virginia law, including requirements that drivers meter flag to be kept down when the cab was
charge a flat rate for certain customers, post a notice carrying passengers, and that everyone requesting a
in their vehicles about how to file passenger ride be picked up, unless the cab was occupied. The
complaints, and purchase greater insurance coverage municipal code established fare rates, prohibited
than required by Virginia law. passengers in the front seat, and prohibited refusing
The NLRB claimed that such controls meant to transport passengers from the airport to the
they were employees. Yet, the appeals court ruled the suburbs. Municipal regulations regulated courtesy to
cab drivers were independent contractors. Most of passengers, driver appearance and attire, and driver
the “controls” were mandated by the FAA contract or conduct at cab lines. Drivers could not use drugs,
by Virginia law. The few remaining employee-like carry weapons, loiter in public outside their cabs,
factors were grossly outweighed by factors suggest- leave their cabs unattended, or violate traffic laws.
ing they were independent contractors. Although Air Driver conduct was never controlled by the
Transit exercised some control over the drivers cab companies. Drivers were not required to operate
beyond legal regulations, it was insufficient to find in any prescribed manner, to report the cab’s
the drivers to be employees. location, to buy gas from the cab company, to accept
calls or dispatches, or to keep their cab in a designat-
More Case Law On Legal Controls ed location. Drivers were on their own once they left
Taxi cab companies seem to feature prominently in the garage, and were free to prospect for fares in any
the “legal control” cases. For example, Local 777, manner. The only requirements the cab company
Democratic Union Organizing Committee v. NLRB, involved enforced were the daily rate for the cab, care and skill
two cab companies providing taxi cab service in in driving, and compliance with applicable laws and
Chicago. The NLRB ruled the cab drivers were regulations. The court found compliance with law
employees. The court reversed, finding the facts not to be control by the employer, and ruled the
insufficient to support employee status. drivers to be independent contractors.
Each cab driver signed a lease under which In SIDA of Hawaii, Inc. v. NLRB, a company of
the driver paid a fixed fee ($22 for a day lease, $15 for independent taxi cab owner-operators argued that
a night lease) and an hourly fee for late returns. The its members were independent contractors. SIDA
driver leased the cab for 2 days at a time, or 3 days on was a self-governing trade association, providing a
weekends. The driver agreed to be the sole driver, not collective body of independent drivers to compete
to sublease the cab, to inspect it at the beginning of with larger taxi companies in bidding for the right to
the lease and report defects, and to return the cab in operate at Honolulu airport. SIDA had an exclusive
good condition with a full tank of gas. The company contract to provide taxi service at Honolulu airport.
provided the taxi cab, the cab license, liability Any qualified applicant could be a member of SIDA
insurance, antifreeze, oil, towing service, tires, and by owning a suitable vehicle, having a valid license,
maintenance. The lease said the drivers were not and having an acceptable personal appearance. If the
required to operate taxi cabs in a prescribed manner, applicant was approved, he signed a Standard
to accept calls or dispatches, to report their location, Independent Drivers Contract with SIDA.
or to keep the cab in a designated location. The court found an absence of actual control
The drivers were required to comply with all by SIDA because:
applicable laws, ordinances, rules and regulations.
Chicago municipal regulations and state law govern-
Drivers made substantial personal investments in appealed to the Tenth Circuit.
their taxi cab activities, purchasing and maintaining Meyer Dairy Company contracted with retail
their own vehicles; obtaining all necessary city and distributors who agreed to purchase the Company’s
state permits; paying their own income taxes, health dairy products at fixed prices, and to sell the prod-
insurance, Social Security, unemployment benefits ucts to customers in specified areas. The Distributors
and auto insurance; and paying a monthly stall rental or “milk men” delivered dairy products to customers
fee to SIDA along with a $0.50 trip fee for each trip over fixed routes. They provided their own trucks for
made out of the airport. delivery, paid all costs and expenses of operation, and
could hire helpers if needed. The Company provided
Drivers were substantially independent in their Distributors with suggested retail prices, but they
operations. They were free not to work for SIDA, were not required to adhere to them. The
could work for other cab companies, could make Distributors’ contract required Distributors to
their own arrangements with clients, and were not comply with regulations and policies of public health
limited to operate in a particular area. Fares were not authorities, and meet standards established by the
determined by SIDA but by local ordinances, which Company, consistent with similar dairy businesses in
were collected and retained by the drivers. SIDA did the Greater Kansas City area.
not pay compensation to the drivers, did not Distributors had no other obligations to the
withhold, and kept no income tax records for them. Company except to pay for the products they
purchased. Distributors had complete control over
Drivers’ contract specifically provided for an their sales and decisions regarding credit, were
independent contractor relationship. responsible for losses from retail sales, paid their own
income and Social Security taxes, controlled their
The NLRB argued that SIDA’s rules, vacations, and provided their own self-retirement
regulations and enforcement were strong evidence of plans or medical and liability insurance.
the company’s control over the drivers. The court The court found that the Distributors were
disagreed. Many of SIDA’s regulations merely essentially holders of franchises to sell Meyer Dairy
incorporated requirements imposed by its commer- products within a specified area. They were not
cial contracts and state and local ordinances. Thus, controlled by the Company except to maintain
the court found the owner-operators to be independ- certain standards required by state law, and thus
ent contractors. were independent contractors.
In Global Home Care, Inc. v. State, Department of
Legal And Community Standards Labor & Employment Security, similar issues arose in the
Meyer Dairy, Inc. v. NLRB, involved the status of milk health care industry. The Florida Department of
distributors as independent contractors or employ- Labor and Employment Security ruled that live-in
ees, and puts a particular spin on the existence of aides were employees, and Global appealed. The
compliance with laws. Meyer Dairy Distributors Florida Court of Appeal reversed, holding Global’s
Association (the “Association”), was a group of milk lack of control over the aides rendered them inde-
distributors who petitioned the NLRB to bargain pendent contractors. Notably, the court held Global’s
with its putative employer, Meyer Dairy Company insistence on compliance with state regulations did
(the “Company”). The Company countered that not constitute supervision of the aides.
Association members were independent contractors. The court held the aides to be independent
The NLRB found the Association members (the contractors because they worked for other agencies,
“Distributors”) to be employees, and the Company and at sites away from company supervision, and the
clients provided materials and a workplace. The aides interstate courier drivers in the context of Interstate
were engaged only as needed on a temporary, per job Commerce Commission (“ICC”) and Department of
basis, and both parties intended an independent con- Transportation (“DOT”) regulations. Each truck
tractor relationship. Moreover, the majority of con- traveling in interstate commerce must be certified.
trol Global exercised over its aides was done to com- The goal of such registration is to promote safe
ply with state requirements for home health care. operation of trucks, and to ensure continuous finan-
Other aspects of control were deemed too minimal to cial responsibility so that truck-related losses receive
be significant. compensation.
The court found it to be unnecessary to
Control In Excess Of Regulations decide whether ICC-mandated controls alone would
In Associated Diamond, Air Transit, Local 777, SIDA of be sufficient to establish employee status. The court
Hawaii, Meyer Dairy, and Global Home Care, the employ- analyzed the substantial nexus of control required
ers did not wield control significantly in excess of by federal regulations, but found that the facts
pertinent regulations. They merely imposed established the existence of “additional control”
standards following federal or municipal regulations. voluntarily reserved by the employer. For example,
In K&D Auto Body, the control went well beyond although ICC regulations required Deaton to make
compliance with law. The courts in these cases certain inquiries, Deaton more thoroughly checked
suggest that to have workers reclassified as employ- out all drivers, including work references, police
ees, an employer must wield pervasive control record, and driving record.
exceeding to a significant degree the scope of the Moreover, although ICC regulations forbade
government imposed control. any disqualified person from driving, Deaton’s
The court in Global recognized the complexi- practice of assessing whether a driver was a “good
ty compliance with laws adds to the worker status risk” involved a subjective, employer-like inquiry.
mix. The cases take a reasoned, realistic view of the The court found this inquiry to be qualitatively
amount by which a putative employer exceeds legal different from merely ensuring that drivers were not
requirements. An employer’s imposition of rules barred from commercial driving. Based on the control
infinitesimally larger than legal requirements should exerted by the company over the drivers, the court
presumably not be fatal to a claim of independent found the drivers to be employees.
Conversely, there should also be no special Conclusions
latitude (that is, no special allowance for employer The cases illustrate that an overlay of legal controls
controls just because there is also a legal framework). on work performance can make already tough
The legal or regulatory environment should be independent contractor vs. employee characteriza-
entirely neutral to the employee vs. independent tion determinations tougher still. Usually, this will
contractor characterization question, at least if the require reference to applicable law, and evaluation
employer’s regimen of rules exactly tracks the legal whether the putative employer merely tracks the law
requirements. or goes beyond it. However, this problem can be
exacerbated where legal or regulatory standards are
Evaluating Extra Controls amorphous.
Employers who subject workers to requirements and For example, how should one evaluate a
standards in excess of legal requirements should be requirement that sales people receive training that is
scrutinized. Thus, in National Labor Relations Board v. “thorough and adequate?” Although rules from
Deaton, Inc., the court considered the status of regulatory bodies ought not to bespeak employment,
exactly what is required by the government’s rules should be examined, and particularly whether any
may not be clear. In such a circumstance, it may be such variations should be strictly construed against
particularly difficult to fairly determine whether the the employer, are largely unclear. The authorities
employer is merely trying to duplicate legal require- have thus far examined this issue in the context of
ments, or inject its own standards as well. federal labor and employment laws. However, the
In theory, rules imposed by law should be same issues may be expected to arise in federal and
neutral to contractor-employee determinations. In state tax cases, state tort law cases, and in legal
fact, at least in the context of labor and employment disputes between the workers themselves and the
law decisions, the courts have consistently held that company over their true status as either independent
governmental regulations do not evidence control by contractors or employees.
the employer. Rules imposed by the government As with so much else in the field of employee
constitutes supervision not by the employer but vs. independent contractor classification, the
rather by the state. presence of laws regulating worker and/or company
However, even such a seemingly sensible rule conduct in a particular industry or location will
may be very difficult to apply in practice. For require careful thought and attention. One must
example, suppose a multi-state employer requires consider the factual setting, the specifics of the
independent contractor and employee painters alike relevant laws, and the manner in which the employer
to wear protective gear when spraying. Further, incorporates legal compliance into its operations, as
suppose that such protection is not required in two well as into its relationship with its workers.
of the 15 states in which the employer operates, but
uniformity and ease of administration explain the Robert W. Wood
company’s uniform policy. Attorney at Law
Although technically this may make the Wood & Porter, PC
employer’s safety rules not within the protective 333 Sacramento Street
umbrella of legal requirements in the two noncon- San Francisco, CA 94111-3601
(415) 834-1800 - phone
forming states, perhaps this kind of discrepancy
(415) 834-1888 - fax
should not be held against the company in a worker email@example.com
classification dispute. Alternatively, perhaps it www.rwwpc.com
should be held against the company only in these two
states. The answer remains unclear.
At the very least, where worker status issues
are examined, the presence of laws and regulations
that impact that relationship must be considered.
The case law (at least in the labor and employment
law field) demonstrates that a legal regime should
not be treated as employer control, but rather as
control by the pertinent legal authority. How
applicable these authorities are in federal and state
tax law, tort cases, etc., however, is also unclear.
Although such legal controls should
generally be discounted in making worker status
determinations, the extent to which variations
between an employer’s rules and legal requirements