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Independent Contractor Vs Employee Court Decisions

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Independent Contractor Vs Employee Court Decisions document sample

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									                              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.
contractor status.
         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                                          wood@rwwpc.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

								
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