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Who is an Employee, Joint Employee, or Independent Contractor?

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Labor Day encourages a review of the legal status of labor. Worker status is important because numerous statutes such as minimum wage and overtime requirements apply to employees but not to independent contractors. Being a "joint employee" means that both employers will have legal liability for employment law violations. If one employer is bankrupt, the other employer hopefully has sufficient assets to pay any claims. Five court decisions in August 2014 illustrate how worker status is determined. The legal standards are fairly consistent although the factual situations in question vary. Always consult an experienced attorney in employment cases.

The federal Court of Appeals for the Ninth Circuit held that FedEx drivers in Oregon were employees rather than independent contractors (Slayman v. FedEx). The Court applied the traditional right-of-control and economic realities tests to a detailed factual discussion of how FedEx and the drivers interacted.

The right-of-control test considers four factors to determine if a worker is an employee or independent contractor. These factors are: 1. To what extend does the employer have either the right to control or in fact exercises control over the details of how the worker does the job? This is the single most important factor. 2. Does the employer or worker furnish tools and equipment? 3. Is payment by the hour or by the job? 4. Does the employer have a right to fire the employee? The Ninth Circuit found significant evidence of FedEx's control of the drivers.

The economic realities test does not involve control but instead the extent to which the worker depends upon the employer for his or her livelihood. The Ninth Circuit determined that the FedEx drivers were employees under this test.

The second court decision involves joint employment. The California Supreme Court in a divided 4:3 decision concluded that Domino's Pizza was not liable for the sexual harassment of an employee of a local franchisee (Patterson v. Domino's). The Court discussed modern franchising and stated that imposing a uniform marketing and operation plan does not create an agency or employment relationship. The majority opinion focused on the franchise contract that made the franchisee "solely responsible" for "recruiting [and] hiring" local store employees. A Domino's employee handbook and computer based orientation did not change the employment. Additionally, other states have reached a similar result.

The California Supreme Court dissenting opinion stated that the majority relied too much on the franchise contract and "not enough on the parties' real world interaction." There was some evidence that a Domino's area leader had sufficient power to force a local franchisee to fire employees. Consequently, the case should have gone to trial on the joint employment question.

The third court decision comes from the Missouri Supreme Court and also involves joint employment (Tolentino v. Starwood Hotels). A housekeeper employed by a labor services company sought to hold the hotel where she worked liable as a joint employer for alleged wage violations. The Court applied a five factor test for joint employment. The factors are: 1. Who has authority to hire and fire? 2. Who supervises and controls the worker? 3. Who determines the rate and method of payment? 4. Who maintains work records? 5. Whose premises and equipment are used for the work? Since facts were in dispute, the case was remanded for a trial.

The fourth court decision involved night janitors at local grocery stores who asserted joint employment, seeking payment for alleged wage law violations (Becerra v. Expert Janitorial). The Washington Supreme Court applied a five factor test similar to Missouri's test. The Court emphasized that the factors are not to be mechanically applied, but require a review of the situation as a whole. In this case it is important to consider if wage violations were known by the grocery stores, whether the payments made to the cleaning service were sufficient to to pay lawful wages, and if the subcontracting of the work was a sham. Apparently the trial judge orally ruled that there was no joint employment but the written opinion did not specify what factors the judge relied upon. The Washington Supreme Court stated that "... we believe it is unlikely that summary judgment should have been granted on this record, but we leave it in the able hands of the trial court..."

The federal Court of Appeals for the Sixth Circuit applied Kentucky state law in denying the employee of an electrical contractor the right to sue a glass company for negligence (Dunn v. Corning). The injured worker asserted that as an independent contractor he was not limited to a workers' compensation award for his injuries, suffered while installing electrical conduit. The Court decided that since Corning employees also performed the work in question, at the time of the injury the worker was a "statutory employee" of Corning. Consequently, Corning was immune from a tort lawsuit by the worker.

These decisions have some common lessons. Contract language is important. Employers are tempted to load-up a contract with provisions to cover any future contingency. However, the more potential worker control the contract allows, the more likely workers are employees. If a worker indefinitely earns a living only from one employer, the more likely there is an employment relationship. Workers should have some breaks in employment with a single employer if they are truly independent contractors. Calling a worker an independent contractor does not necessarily make her or him one. In contrast, a worker who appears to be an independent contractor may be an employee in some situations.

Additionally, it is not difficult to slip into a joint employment situation if the employer is exercising control of the details of tasks it has contracted to have performed (rather than just the end product) or asks the staffing agency to discipline or fire the workers that it sent. Complaints are best directed to the quality of the end product only. Finally, since these issues are legally complex, both employers and employees should seek the advice of experienced legal counsel.