Employee versus Independent Contractor

by | Jul 9, 2017 | Firm News

Businesses are examining the option of treating the people who do the work for them as independent contractors and not employees. Independent contractors can be denied most of the protections the law provides to employees. These include, but are not limited to, withholding taxes, employer’s share of Social Security contributions and State Disability Insurance premiums, overtime compensation, overtime premiums, breaks, reimbursement of expenses for business use of employees’ vehicles or other tools and equipment, vacation pay, sick pay, and health benefits. Some businesses also feel less inhibited about terminating, reducing compensation and reducing hours of independent contractors than of employees, even with respect to at-will employees.

There are at least 14 factors a court, tax authority or employment-related government agency will look at to determine whether or not your workers are really independent contractors or are employees. Only one of those factors is the language in the contract which says that the worker is an independent contractor and not an employee. In the July 2017 case of Espejo v. The Copley Press, Inc., a class action by the men and women who deliver the San Diego Union, the Court of Appeal held that, “The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.”

The principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. 

The right-to-control test has been described this way:

“[W]hat matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise. Whether a right of control exists may be measured by asking whether or not, if instructions were given, they would have to be obeyed on pain of at-will discharge for disobedience.”

If your business needs to decide and dictate when, where and how your workers do their jobs, then trying to treat them as independent contractors will be very risky.

If you lose such a case, the damages could be staggering. There could be unpaid wages, unpaid premium overtime wages, vacation pay, sick pay, unreimbursed business expenses, unpaid withholding taxes owed to the IRS and state and local governments on all of those amounts, along with penalties and penalty late charges or interest, and all the legal fees to defend the case and reimbursement of all of the plaintiffs’ legal fees, which can include a lodestar bonus for the difficulty of the case and the risk the attorneys took in taking the case on a contingent fee basis.

If you want to consider hiring independent contractors instead of employees, go over all of the factors with your attorney, thoroughly and honestly. As discussed above, judges are not stupid and will see through a subterfuge.