Do you work as an independent contractor? Do you know what constitutes work as an independent contractor? Or are you really working as an “employee”? There are differences between the two, but sorting it out can get a little complicated. However, it would behoove you to know where you stand in case you are ever engaged in a legal dispute regarding your job. Here is some relevant information provided by The Enforcement Policies and Interpretation Manual issued by the Division of Labor Standards Enforcement Department):
28 INDEPENDENT CONTRACTOR vs. EMPLOYEE.
28.1 Labor Code § 2750, Contract Of Employment: “The contract of employment is a contract by which one, who is called the employer, engages another, who is called the employee, to do something for the benefit of the employer or a third person.”
28.2 Burden Of Proof. The party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. In other words, there is a presumption of employment. (Labor Code § 3357; S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d 341 at pp. 349, 354 .)
28.3 Multi-Factor Borello Test. In determining whether an individual providing service to another is an independent contractor or an employee, there is no single determinative factor. Rather, it is necessary to closely examine the facts of each service relationship and to then apply the “multi-factor” or “economic realities” test adopted by the California Supreme Court in Borello, supra, 48 Cal.3d 341.
28.3.1 The Test Prior To Borello. Prior to Borello, the leading case on this subject was Tieberg v. Unemployment Insurance Appeals Bd. (1970) 2 Cal.3d 94 3, which held that “the principle 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.” Under this test, “if the employer has the authority to exercise complete control, whether or not that right is exercised with respect to all details, an employer-employee relationship exists.” Empire Star Mines Co. v. Cal. Emp. Com. (1946) 28 Cal.2d 33, 43.
28.3.2 Control As A Factor. Borello brought about a sharp departure from this overriding focus on control over work details. The growers who were found to be employers by the Borello court did not have the contractual authority to exercise supervision over work details, yet the court ruled that they retained “all necessary control” over their operations. The simplicity of the work, or the existence of a piece-rate based payment system, may make it unnecessary for an employer to assert direct control over work details and the employer may retain “all necessary control” by indirect means.
18.104.22.168 “The ‘control’ test, applied rigidly and in isolation, is often of little use in evaluating the infinite variety of service arrangements.” (Borello, 48 Cal.3d at p. 350) While the right to control the work remains a significant factor, the Borello court identified the following additional factors that must be considered:
1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his task;
5. The skill required in the particular occupation;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job;
11. Whether or not the parties believe they are creating an employer-employee relationship.
22.214.171.124 Factors Cannot Be Applied Mechanically. These “individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” These factors must be applied “with deference to the protective legislation,” in a manner that will effectuate the provisions of the Labor Code, in view of the history and fundamental purposes of the legislation. (Borello, supra, 48 Cal.3d at pp. 351, 353) For example, in the application of minimum wage legislation, “employees are those who as a matter of economic reality are dependent upon the business to which they render service.” Real v. Driscoll Strawberry Associates, 603 F.2d 748, 754 (9th Cir.1 979).
28.3.3 Application Of Economic Realities Test: In Yellow Cab Cooperative v. Workers Compensation Appeals Bd. (1991) 226 Cal.App.3d 1288 , the court held that taxi drivers who pay a daily lease fee to a taxi company for the right to drive a taxi are employees rather than independent contractors, despite the company’s contention that the drivers did not have to take radio calls, could drive wherever they wanted, could use the taxi to run personal errands or carry non-paying passengers, and could choose to work whenever they wanted. The court, while noting the absence of control over work details, reasoned that “to the extent [a driver’s] freedom might appear to exceed that of a typical employee, it was largely illusory. If he wanted to earn a livelihood, he had to work productively and that meant carrying paying passengers.” (Yellow Cab Cooperative, 226 Cal.App.3d a t p. 1299 ) The absence of control over details is of no consequence “where the principal retains pervasive control over the operation as a whole, the worker’s duties are an integral part of the operation, the nature of the work makes detailed control unnecessary, and adherence to statutory purpose favors a finding of [employment].” (Id., 226 Cal.App. at p. 1295)
126.96.36.199 Investment As A Criteria. A disproportionate level of investment by the employer is a factor that points towards an employer/employee relationship. For example, in a typical taxi lease arrangement, the taxi company owns the vehicle and the medallion, and pays for liability insurance, a radio dispatch system, towing, taxi repairs and maintenance. The driver pays a daily or weekly lease fee and may be responsible for filling the taxi with gasoline before returning it.
188.8.131.52 Business Of Employer As A Factor. Ownership of the vehicle used to perform the work may be a much less important factor in industries other than transportation. Even under the traditional, pre-Borello common law standard, a person making pizza deliveries was held to be an employee of the pizzeria, notwithstanding the fact that the delivery person was required to provide his own car and pay for gasoline and insurance. Toyota Motor Sales v. Superior Court, 220 Cal.App.3d 86 4, 876. “The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer, and when the worker, relative to the employer, does not furnish an independent business or professional service.” (Borello, supra, 48 Cal.3d at p. 357)
184.108.40.206 Labels Not Dispositive. The existence of a written agreement purporting to establish an independent contractor relationship is not determinative. “The label placed by the parties on their relationship is not dispositive, and subterfuge will not be countenanced.” (48 Cal.3d at p. 349) The Labor Commissioner, and the courts, will look behind any such agreement in order to examine the facts that characterize the parties’ actual relationship.
220.127.116.11 Length Of Service. The fact that a person may be hired to work for only a short period of time is also, obviously, not always a determinative factor. The so-called “share farmers”, found to be employees in Borello, were engaged to provide services during the course of a sixty-day harvest season. Despite the seemingly temporary nature of this arrangement, the court observed that their seasonal positions are “permanently integrated into the [grower’s] business.”
18.104.22.168 Effect Of Tax Status. The fact that a person who provides services is paid as an independent contractor, that is, without payroll deductions and with income reported by an IRS form 1099 rather than a W2, is of no significance whatsoever in determining employment status. “An employer cannot change the status of an employee to one of an independent contractor by illegally requiring him to assume a burden which the law imposes directly on the employer.” Toyota Motor Sales v. Superior Court (1990) 220 Cal.App.3d 864, 877.
Well, that is quite a bit of information. Indeed, this section continues on in the Manual and provides further information. However, I have provided most of the “jist” of the subject here.
Obviously, this is a complex subject. If you have any questions regarding Independent Contractor vs. Employee, consult competent legal counsel. At Rupal Law, we help our clients with issues related to employment law. We help employers and employees to navigate these complex problems.