Businesses’ use of independent contractors is a growing trend in the American economy, and many observers believe the trend is here to stay. Independent contractors come in a variety of shapes and sizes. Well-known companies like Uber and Lyft rely almost exclusively on independent contractors, but there has been a significant increase in the use of independent contractors for a variety of duties in nearly all industries.
Using independent contractors comes with many benefits for employers. For example, the relationship between a company and an independent contractor is not governed by the Fair Labor Standards Act (FLSA), the National Labor Relations Act (NLRA), or the Family and Medical Leave Act (FMLA), nor are companies liable for the payroll taxes or negligent acts of independent contractors. However, the demarcation line between “employee” and “independent contractor” is beginning to blur, which means it’s even more important to understand how you can make sure your independent contractors stay that way.
Short-term control and liability for negligence
In the average independent contractor relationship, the hiring party contracts with the independent contractor for one job to be completed by a certain date for an agreed-on amount. Under the law of most other states, the hiring party is not liable for the negligent acts of an independent contractor. However, if a hiring party exercises enough “control” over the contractor, it may become liable.
For example, when you hire a painting company to paint the outside of your office building, the painters would normally go about their business without much interference from you. Maybe you tell them when the job needs to be done and which color paint you want them to use.
But what if you decide you want the painters to use a certain type of ladder? Then you ask them to use a certain type of brush and, for some reason, decide to limit the type of safety equipment they use. At some point, you have exercised enough control that you can be held liable for the negligence of an independent contractor and be required to pay for injuries to one of the contractor’s employees or an innocent third party.
Your efforts to avoid exercising control to the point of liability don’t mean you have to let an independent contractor run freely around your workplace. As the hiring party, you can retain broad general power to supervise and direct matters related to the contractor’s safety or access to the jobsite. However, you should be careful about directing exactly how an independent contractor goes about the work. Precisely where the line can be drawn is a gray area, but the key is whether you stop an independent contractor from doing the work his own way.
Long-term control and the employment relationship
Companies that use independent contractors as a foundational piece of their labor supply should be careful. Long-term control over independent contractors, or even the right to control them, can have far-reaching implications. The two main issues revolve around the FLSA and the NLRA.
Under the FLSA, you can be found to have an employment relationship with an independent contractor. Determining whether a worker is an independent contractor or an employee turns on six factors:
- How integral to the employer’s business is the work being performed by the worker?
- Does the worker determine his own profit or loss?
- How does the worker’s investment in the business compare to the company’s investment?
- Does the work require special skill and initiative?
- Does the worker have a permanent relationship with the employer?
- How much control does the employer exercise over the worker?
The implications of a finding that an independent contractor is really an employee can be drastic because you might have to comply with the provisions of the FLSA (and the FMLA) requiring overtime, minimum wage, and family and medical leave benefits, and you could be liable for a significant amount of back-pay damages. Determining employment status under the NLRA is simpler. A company may be a joint employer of an employee for purposes of unionization under the NLRA when it exercises control over the terms and conditions of employment or retains the right to. If you reserve the right to control your independent contractors’ work, you may find yourself across the bargaining table from a group of workers you thought were contractors.
Keeping independent contractors independent
There are several strategies that you can follow to make sure your independent contractors stay that way. First, you should evaluate your workforce using the test enumerated above and understand which independent contractors might be seen as employees by a court. Second, you should be conscious of the language in your contracts. Make sure you always have contracts with independent contractors that define the relationship and specify when the agreement terminates.
A common theme of independent contractor liability is control. You should limit the amount of control you and your supervisors exercise over your contractors. You can still use progress reports and performance metrics, but you may get into trouble if you start directing how an independent contractor completes the task he was hired to perform.
Companies that use independent contractors should be careful. No company wants to unexpectedly owe someone it thought was a contractor overtime and back-pay damages. As long as you respect the independent contractor relationship and minimize the amount of control you exert over your contractors, you likely can avoid being deemed a true employer of your independent contractors.