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“Control is the principal factor in determining whether an individual worker is an employee or an independent contractor.”

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legal updates

October 2008

INDEPENDENT CONTRACTORS

UPDATE


Worker Deemed

Independent Contractor;

Wrongful Termination Claims Fail


By Christopher W. Olmsted

One of the advantages of hiring properly classified independent contractors is that they have no standing to file employee lawsuits alleging wrongful termination, certain discrimination claims, and other causes of action that are dependent on employee status.

The catch, of course, is that the workers must be properly classified as independent contractors. Employers often get it wrong. A worker who is improperly classified as independent can refute the classification in litigation, and if successful, sue to enforce rights afforded to employees.

A Recent Case: Varisco v. Gateway


In a recent California appellate case titled Varisco v. Gateway Science and Engineering, Inc., an independent contractor attempted to prove that he was an employee who could sue for wrongful termination in violation of public policy.

Gateway provides professional services such as project management, planning and design management, inspection, and quality assurance to the construction industry. Varisco is a construction inspector and has a Class-1 Inspector certification from the California Division of the State Architect ("DSA").

Gateway hired Varisco as an independent contractor to work on assignment with the Los Angeles Unified School District as a certified project inspector. After about 11 months, Gateway offered Varisco a new contract, which he refused to sign. Gateway terminated Varisco, and he sued for wrongful termination.

During litigation, Gateway filed a motion for summary judgment, arguing that as an independent contractor, Varisco could not assert employee claims. The trial court found that Varisco had no evidence that he was an employee and it granted the motion in favor of Gateway.

On appeal, the Fourth District Court of Appeal agreed with the trial court.

Primary Factor: Control


Control is the principal factor in determining whether an individual worker is an employee or an independent contractor. “An independent contractor is ‘one who renders service in the course of an independent employment or occupation, following his employer's desires only in the results of the work, and not the means whereby it is to be accomplished,’” wrote the court, quoting prior cases.

Secondary Factors


In addition to the primary element of control, case law has identified secondary indicia of the nature of the relationship. These are:

  • whether the one performing services is engaged in a distinct occupation or business;
  • 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;
  • 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 or not the work is a part of the regular business of the principal; and
  • whether or not the parties believe they are creating the relationship of employer-employee.

    The appellate court determined that Varisco was an independent contractor. It considered the following factors:

    No Control. Varisco was a construction inspector, and his job was to ensure that the project met the requirements set out in the California Code of Regulations. Gateway entered into an agreement with him, paid him, and sent him to the job site so that he could exercise his skill and accomplish the result, but that is all that Gateway did. All of Varisco's reports were to the LAUSD, often on LAUSD forms. If an inspection revealed a problem, Varisco reported it to the LAUSD, not Gateway. If he had a question, he asked the architect, not Gateway. Gateway, which did not have a representative at the job site, does not even seem to have known the details of Varisco's work, and certainly could not have controlled them.

    Skilled Work. Courts are placing increased importance on skill. Varisco engaged in skilled work, in a distinct occupation.

    Supplies. He supplied his own clothes and equipment.

    No Benefits. He received no benefits.

    Belief. The parties clearly believed that they were entering into an independent contractor agreement. Varisco testified that he believed he was independent.

    Hourly rate OK. The court noted that these days it is common for independent contractors to work by the hour, not by the job. The fact that Varisco was paid an hourly rate did not make him an employee.

    Same Business As Principal OK. One of the factors increasingly relied upon by courts is whether or not the worker’s job was part of the principal’s regular business. Where the worker performs services that are part of the regular business, this would weigh in favor of employee status. Here, construction inspection was part of Gateway's regular business. But the court gave Gateway a pass. “Even if one or two of the factors . . . do suggest an employment relationship, when all the factors are weighed and considered as a whole, Varisco was not an employee. The principle issue is control, and Gateway had none.”

    At Will Clause OK. Likewise, the court downplayed the fact that Gateway included an at will clause in the independent contractor agreement. Several case precedents hold that the right to fire a worker at will is an indicia of control, weighing in favor of employee status. The court decided that at will status, while relevant, is not determinative. This is particularly so where the right to terminate at will is mutual. “An independent contractor agreement can properly include an at-will clause giving the parties the right to terminate the agreement. Such a clause does not, in and of itself, change the independent contractor relationship into an employee-employer relationship. If it did, independent contractor arrangements could only be established through agreements which limited the right of a party, or perhaps both parties, to terminate the agreement. This would be absurd, and it is not the law.”
    The court concluded that Varisco was an independent contractor, and therefore the trial court properly granted Gateway’s motion for summary judgment.

    Practical Tips



  • Designating workers as independent contractors is not a panacea. Improper classification can lead to big trouble with tax authorities, your local district attorney, and employee lawsuits.
  • Before classifying workers as independent, carefully review the relevant factors. Email Chris Olmsted (cwo@barkerolmsted.com) for a complimentary guideline. It is prudent to seek legal counsel.
  • Hourly pay and at will status do not necessarily defeat independent contractor status. Additionally, the fact that the worker’s job is part of the principal’s regular business is not determinative. However, the determination is fact-intensive and courts have tended to find in favor of employee status. Be careful!


    More Legal Update articles.
    Download entire October Legal Update in PDF format.


    This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2008 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.





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