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To determine whether an individual is an employee or independent contractor under the common law, the relationship of the worker and the business must be examined. All evidence of control and independence must be considered. In an employee-independent contractor determination, all information that provides evidence of the degree of control and degree of independence must be considered.
Independent Contractor or EmployeeUnder federal and state laws, an independent contractor must be just that, independent. He or she must provide a product or service without punching a time clock or being told how to do the job. Independent contractors are described as persons engaged in occupations who contract to perform work according to their own methods, without being subject to control of the employer except for the result. Before an employer can determine how to treat payments it makes for services, the employer must first know the business relationship that exists between employer and the person performing the services.
The person performing the services may be an independent contractor or an employee. Simply because an employer refers to a worker as an independent contractor or he or she has agreed to the arrangement in a written contract does not mean that the individual is correctly classified as an independent contractor. Likewise, the fact that payments are issued by accounts payable rather than the payroll department also does not mean that the person is an independent contractor. The nature of the relationship between the individual and the employer is the true determinant, and misclassification can result in serious consequences for an organization.
In Mary’s case, the scenario is vague and may need a little more information in order to give an accurate assumption on whether or not Mary is a contractor or an employee. Mary was hired for a special programmer project as a contractor and just as the project was nearing completion, a new project came into play. For this new project, Mary was required to use company materials and equipment while adhering to company schedules, which makes it seem as though she was being treated as an employee. Mary, at one point being an independent contractor, has now developed a relationship with the employer, the more likely there is an employer/employee relationship, and the tables at this point have turned.
Not only has Mary been working for the company for a number of years, Mary is now working under the supervision of a supervisor, using company materials and equipment, not to mention that she now has to adhere to the company work schedules. Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done (Internal Revenue Service, 2004).
Employer / Employee RelationshipThe employer/employee relationship between Mary and Little Lamb has changed over the course of time. With respect to Mary’s services, are they regularly available to the general public? They should be, and if Mary does not attempt to make the availability of his/her services known to the general public, her relationship with Little Lamb could be viewed as an employer-employee relationship. The primary issue here is who is running the ship. Does Little Lamb have the right to hire or fire, determine the wage or salary to be paid, and decide on the time, place, and manner in which the work is to be done? If so, then the employer-employee relationship exists. Also, even if Little Lamb does not directly control Mary’s activities, but has the right to do so, the notion of control still exists. Under the common-law (20) criteria test, an employer-employee relationship is present between Mary and Little Lamb Company.
Employment at-willOne critical employment law issue affecting employee handbooks and policy manuals is employment at will. Employment at will is traditional common law perspective that an employee may seek work and quit at any time, and likewise, that the employer may hire and fire at any time for any reason or no reason. Employees always have the right to quit their jobs, no matter how inconvenient their departure may be for the employer. The employer’s right to fire or terminate the employee is not quite so simple and clear-cut.
Some employees work under a written contract that specifies exactly the circumstances under which they can be terminated. If the agreement sets out a termination procedure, then it is a breach of contract to terminate the employee without following the procedure. Further, in states where at-will employment does exist, it is littered with statutory exceptions. That means you cannot terminate workers if the discharge infringes on a protected right or goes against public policy (Falcone, 2004).
Many employee terminations are based on a need to downsize, rather than on the employee’s individual poor performance (D. Shilling 1998). When employees are classified as reduction in force, it should be clarified that they are not at fault. Downsizing also affects a company’s public profile, and its ex-employees can become either good-will ambassadors or the complete opposite.
Mary’s release was legal under the doctrine of employment at-will, providing she was an employee. Employment-at-will status does not provide employees with job security, and an employee can be fired on a moment’s notice for any legitimate reason, or for no reason at all. On the other hand, if Mary was a contractor, then Little Lamb would have broken the employment contract which would be illegal.
There are five key exceptions to the employment-at-will doctrine:Employment contracts: If a contract exists, you must adhere to its terms and conditions, including notice requirement, least you breach the contract. Where an employment contract exists for a fixed period of time (for example, three years) and is silent concerning grounds for terminating the contract, many state courts have ruled that employers have an implied obligation to discharge only for just cause. Similarly, unionized employees are governed by the terms and conditions of a collective bargaining agreement-they are not at-will employees.
Statutory considerations: Dismissals are illegal when based on age, sex, national origin, religion, union membership or any other factor protected by law. Potential problems arise any time you fire someone in a protected class.
Public policy exceptions: You cannot terminate an employee for such activities as filing a workers’ compensation claim, whistle blowing, engaging in group activities that protest unsafe work conditions or refusing to commit an unlawful act on the employer’s behalf.
Implied contract exceptions: You may be bound by promises published in your employee handbook or oral promises made at the hiring interview requiring “just cause” to terminate.
In addition, you are prohibited from discharging long-term employees just before they are due to receive anticipated financial benefits (known as an implied covenant of good faith and fair dealing). Because of these limitations, you must attempt to protect the at-will employment status at all costs. And that requires regular reminders about the at-will relationship you have with employees, as well as progressive discipline (Falcone, 2004).
The law governing the relationship between an employee and an employer begins when an offer for employment is made by an employer to an employee. Labor law regulates the entire relationship between employer and employee and the initial hiring process, job duties, wages, promotions, benefits, employment reviews and termination of the employment relationship. It also includes litigation on the basis of unfair labor practices and discrimination. Sometimes there is a question of whether a worker is an employee or an independent contractor.
The courts will usually look to the relationship and determine whether the employer had the right to control how the employee performed the job. If that is unclear, the court may look to the nature of the relationship between the employee and the employer. If the employee is substantially economically dependent upon the employer, then ultimately the bottom line would be that there is an employee-employer relationship.
Castagnera, J. (1988). Personnel Law Book. Greenvale, New York: Panel PublishersFalcone, P. (2004). A legal Dichotomy. Retrieved September 24, 2006 from: http://www.shrm.orgInternal Revenue Service. United States Department of Treasury. Retrieved September 25, 2006 from: http://www.irs.govShilling, D. (1998). Human Resources and the Law. Printice hall. Paramus, New Jersey.