EMPLOYEE OR INDEPENDENT CONTRACTOR? IT’S NOT SO SIMPLE

I often hear people state matter-of-factly that they have hired independent contractors to do some work for them, relishing the fact that they don’t have to worry about payroll, employer withholdings, and those pesky wage and hour laws (the existence of an employer-employee relationship is necessary in order to invoke wage and hour protections under California law).  Generally, the more they tell me about it, the less convinced I am that the people they’ve hired are truly independent contractors.  And I can assure you that the ramifications of misclassifying workers as independent contractors rather than employees can be very expensive!

So what is an independent contractor?  This article will briefly explore the factors which courts and the Division of Labor Standards Enforcement (a division of the California Department of Industrial Relations) use in determining whether a working relationship is “independent contractor” or “employer-employee.”  I will focus on California law, which is not greatly different than federal law, and as a general matter the same result will likely (though not always) be reached.

For many years California courts have invoked a “right of control” test to determine whether a worker is an employee or an independent contractor.  The California Supreme Court, in S.G. Borello & Sons v. Department of Industrial Relations (1989) 48 Cal.3d 341, articulated the “right of control” test, while also recognizing its limitations: “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 . . . .  However, the courts have long recognized that the ‘control’ test, applied rigidly and in isolation, is often of little use in evaluating the infinite variety of service arrangements.  While conceding that the right to control work details is the ‘most important’ or ‘most significant’ consideration, the authorities also endorse several ‘secondary’ indicia of the nature of a service relationship.”  S.G. Borello & Sons, 48 Cal.3d at 350.

Thus, employers must also consider, at a minimum:

  • Whether the employer has the right to discharge the worker at will, without cause;
  • Whether the one performing services is engaged in a distinct occupation or business;
  • Whether the kind of occupation is usually done under the direction of the principal or by a specialist without supervision;
  • The skill required in the particular occupation;
  • Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the 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 the work is a part of the regular business of the principal;
  • Whether the parties believe they are creating the relationship of employer-employee;
  • The worker’s opportunity for profit or loss depending on his or her managerial skill;
  • Whether the service rendered is an integral part of the alleged employer’s business.

All of the above factors, and perhaps more, should be evaluated before classifying a worker as an independent contractor.  It is critical to recognize that there is no bright-line test.  Keep in mind that not every factor may apply to a given relationship.  It is important to seek professional advice on this issue.

The best approach is: If in doubt, classify the worker as an employee.

Helpful Links

I’ve posted some links below which may prove helpful for employment or general litigation questions and research:

HELP!! DO I NEED A LAWYER?!

Most people at some point ask themselves (or their friends), “Do I need a lawyer?”  If you’re asking the question, then you should at least contact a lawyer.  It is only by talking to a lawyer about your issue or problem that you can determine whether you actually need to hire a lawyer.

There are of course a multitude of factors which will determine your course of action, many of which can be addressed in your conversation with a lawyer.  Is this something that I can handle by myself?  Do I really want to pay a lawyer to do this for me?  Is it worth the time, effort and cost to hire a lawyer?  Will the lawyer take my case on a contingency basis, or will I have to pay an hourly rate?  A good lawyer will help you evaluate your options, but in the end the decision is yours to make.

So how do you go about finding a good lawyer?  The best way is usually through referrals.  For example, ask your family, friends, business acquaintances, doctor, insurance agent, or other people you know.  Use common sense, of course.  If your issue concerns a potential claim against a business acquaintance you might not want to ask that person if they know of a good lawyer!  You might also do a local internet search or check the phone book.  The local county bar association might have a lawyer referral service.  In fact, our very own Sonoma County Bar Association has a good lawyer referral program; go to sonomacountybar.org.  (Full disclosure: I’m a panelist for the SCBA Lawyer Referral Service).  And don’t forget about your local Chamber of Commerce.

Okay, you now have a name (or preferably two or three).  What’s next?  Make the initial contact by phone or e-mail, giving a brief description of why you’re calling.  Make sure that your matter is something within the lawyer’s practice area or is otherwise something that the lawyer can competently handle.  For example, my office (SonomaLawOffice.com) handles employment law cases, business disputes, real estate, construction, probate and will contests, personal injury matters, and writs and appeals.  If someone calls me about a workers’ compensation, tax or bankruptcy matter, I will not consider taking the case because those cases are not in my practice areas.  Practice area limitations also apply to most other attorneys.

The lawyer (or his or her assistant) may conduct a pre-screening by phone to determine whether they feel your issue is something they can or want to handle.  It’s not unusual to make many phone calls without finding a lawyer who will meet with you.  This may have more to do with the lawyer’s schedule or comfort zone with your issue than the merits of your case (though not always).

Assuming you have found a lawyer whose practice area is appropriate to your issue and who would like to discuss your case with you, make an appointment for an initial face-to-face consultation.  I believe it is vitally important to actually meet the lawyer you are considering hiring.  A phone conversation is simply not enough.  Keep in mind that not all lawyers provide a free initial office consultation.  Although some lawyers will provide a half-hour or an hour at no charge, it’s not unusual for a lawyer to charge full rate (or perhaps a reduced rate) for a consultation.  Remember to ask about the charge for the initial consultation at the time you make your appointment.  Surprises should be avoided!

Now you show up for your meeting.  How does it work?  This is, after all, probably a foreign environment for you.  First, bear in mind that your communications with the lawyer are privileged.  The lawyer-client privilege protects certain communications between a client and his or her lawyer, and keeps those communications confidential.  Be sure to ask the lawyer about the privileged nature of your conversation.

In all likelihood the lawyer will ask you a lot of questions.  But don’t be afraid to ask questions of your own.  In fact, you should go to the meeting with a list of any questions you have.  Ask the lawyer about his or her experience, in particular with issues similar to yours.  You should also ask about how communications between you and the lawyer’s office will be handled if you retain the lawyer’s services.  Clear and prompt communication is essential to a good relationship.  Ask any other questions which are important to you.

Be mindful of the interaction between you and the lawyer.  If you don’t “click” with the lawyer, or if for any reason you don’t feel a connection, it may be difficult or impossible to work effectively with the lawyer.  You will likely spend a lot of time with the lawyer over the course of time it takes to deal with your legal issue, so a mutually comfortable relationship is paramount.  The bottom line is: personality matters!  Of course, you also want a lawyer who is competent, experienced, honest and communicative.

If you and the lawyer agree to work together, in most cases a written agreement for representation is required.  Even if not, it is always a good idea to have your agreement in writing.  Review the agreement carefully, and ask questions if you have any.  Fees, whether hourly, contingent or flat fees, are negotiable.  And remember, your lawyer is working for you!

Hopefully these tips will help you select the right lawyer.  Good luck!