Independent Contractor vs. Employee: Which is Which? by Judy Segerstrom Barrett, Esq. Determining whether an injured worker is an "employee" or an "independent contractor" has long been an important issue to California employers. After all, an "independent contractor" is not covered by California workers' compensation. How are these two classifications distinguished? Labor Code §3353 provides a multifaceted definition of "independent contractor." Specifically LC §3353 defines the term as meaning: Any person who renders service For a specified recompense For a specified result Under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished Given this definition, it becomes obvious that the character of the relationship is a factual determination for the Board. This is of particular concern to California employers inasmuch as the labor code establishes a presumption in favor of a finding in an employer-employee relationship. Further, the claim that the injured worker was an independent contractor is an affirmative defense, meaning that the alleged employer carries the burden of proving that the injured worker was an independent contractor (Lab. Code, §5705; Guarantee Ins. Co. v. Ind. Acc. Com. (1955) 137 Cal.App.2d 691 [290 P.2d 920]; Calif. etc. Ins. Co. v. Ind. Acc. Com. (1948) 86 Cal.App.2d 861, 866 [195 P.2d 880]). Factors used to evaluate the relationship include: (1) the right of control over the mode and manner in which the work is done; (2) the employer's right to terminate the employee services, and the employee's right to quit when he wishes, without either incurring liability for failure to complete the job; (3) a distinct occupation or business on the part of the person performing service; (4) the nature of the occupation (i.e., the special skills or training necessary to render the service); (5) who supplies the instrumentalities, tools, and place of work; (6) the length of time required to render the service; (7) the method of payment; and (8) the parties' belief as to the arrangement they have created (2 Hanna, Cal. Law of Employee Injuries and Workmen's Compensation (2d rev. ed. 1981) §4.02 [2] [a]). Not all these factors are of equal weight. The decisive test is the right of control, not only as to results, but as to the manner in which the work is done. (2 Hanna, supra, §4.02 [2] [b].) Generally, however, the individual factors cannot be applied mechanically as separate tests; they are intertwined, and their weight depends often on particular combinations (2 Hanna, supra, §4.02 [2] [a].) [123 Cal.App.3d 784]. Watch Out for the Feds! While the foregoing information has always been important to California businesses, the stakes have recently risen dramatically. This past March, the U.S. House of Representatives conducted hearings on the issue of the "unchecked and growing practice" of misclassifying employees as independent contractors. This was described as "occur[ring] with an alarming frequency." As a result, the Department of Labor has been mandated to enforce with vigor the proper classification of workers. (Did you know that the proper classification of a worker has implications under not only the Workers' Compensation Laws, but also Federal and State civil rights laws, the National Labor Relations Act, the Occupational Safety & Health Act (OSHA), the Americans with Disabilities Act (ADA), the Family & Medical Leave Act (FMLA), and state income and unemployment tax measures?) Now That We've Got Your Attention, Here's What To Do With California workers' compensation and federal issues underscoring the importance of proper worker classification. Following are a few tips to help you in the proper classification of workers: Review the status of your entire workforce: Examine the current classification of all of your workers, including journeymen, sales, and office staff. Determine the functions of each job: For those currently classified as "employees," do you have a job description for that position? How does the job description compare to the actual job(s) being performed by that individual? For those currently classified as "independent contractors," is there a written contract, including a provision regarding the scope of work, to be performed by that person? Take the Control Test: A significant factor used to determine how to classify a worker is the degree of control the business maintains over that worker. The greater the sphere of influence, the more likely the worker is an employee. Historically, the IRS has used a "20 Common Law Factor Test" to determine the status of workers. These factors, grouped into three categories, can greatly assist businesses to properly classify workers: Behavioral control (instruction and training) Financial control (significant investment, un-reimbursed expenses, services available to the relevant market, method of payment, and opportunity for profit/loss) Relationship of the parties (intent of the parties/written contract, employee benefits, discharge/termination, and regular business activity). Take Immediate Corrective Action If you determine that a worker is misclassified, take immediate corrective actions. The IRS offers helpful tips on how to correct misclassification of employees on its web site. (Go to http://www.irs.gov, and then select small business.) If the misclassification resulted in a worker being paid less than he/she would have been paid as an "employee" (such as applying minimum wage and/or overtime), seek legal advice for any type of settlement negotiations of wage issues. Need additional help untangling the "employee" versus "independent contractor" web? Contact Judy Segerstrom Barrett at (714) 526-9120. Judy Segerstrom Barrett is in charge of Special Projects at the Fullerton branch of Bradford & Barthel, LLP, and she specializes in workers' compernsation defense.