Am I an independent contractor or an employee? How should my business classify its workers, as independent contractors or employees?

Both workers and businesses struggle with these questions at times. Most of the time, the answers are pretty clear. However, in a significant minority of employment relationships, the answers are not clear. Unfortunately for those who struggle with questions about their employment relationships, the tests used to answer these questions are often hard to apply.

The first thing to consider when trying to determine whether a worker is an employee or independent contractor is whether the person receiving the service controls the details of the work. (Empire State Mines Co. v. Cal. Emp. Com., (1946) 28 Cal.2d 33, 43.) However, control is not the only consideration. “[T]he ‘control’ test, applied rigidly and in isolation, is often of little use in evaluating the infinite variety of service arrangements.” (Borello & Sons, Inc. v. Dept. of Industrial Relations, (1989) 48 Cal.3d 341, 350.) In other words, if control does not clearly show an employment relationship, then the person analyzing the relationship should apply “economic reality test” factors, similar to those listed below, to further evaluate the relationship:

(a) Whether the one performing services is engaged in a distinct occupation or business;

(b) 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;

(c) The skill required in the particular occupation;

(d) Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(e) The length of time for which the services are to be performed;

(f) The method of payment, whether by the time or by the job;

(g) Whether or not the work is a part of the regular business of the principal;

(h) Whether or not the parties believe they are creating the relationship of employer-employee.

(i) The worker’s opportunity for profit or loss depending on managerial skill;

(j) The permanence of the working relationship;

(k) Whether the service rendered is an integral part of the employer’s business. (Borello, at 351, 354-355.)

Employers have argued that in some situations, only the control test should be applied. That test arguably will more often find an independent contractor relationship than the economic realities test. Employers usually want to have independent contractors working for them rather than employees. However, the trend is to find an employment relationship, at least where employee rights and benefits are concerned or where the state has an enforcement interest. (Air Couriers Internat. v. Employment Development Dept., (2007)150 Cal.App.4th 923, 935-37.)

The federal cases analyzing employer-employee relationships under the Fair Labor Standards Act also apply economic realities test factors. (Real v. Driscoll Strawberry Associates, (9th Cir. 1979) 603 F.2d 748, 754.) Regardless, some state or federal agencies may still apply some form of the control test.

As an employer, to be on the safe side, you should analyze your workers under the arguably more liberal economic realities test. Similarly, in most cases, workers will not be wrong if they analyze their work relationship by applying the broader economic realities test. However, depending on what agency is analyzing the issue or the state in which the worker is performing the work, a control test may be the correct test to apply.

S. Ward Heinrichs, Esq.
Employment Law Office of Ward Heinrichs
4565 Ruffner Street, Suite 207
San Diego, CA 92111
858-292-0792
(858) 408-7543 (fax)