The question of whether an individual is classified as an employee or an independent contractor is a vital one. If the individual is an employee then the company may be vicariously liable for the conduct of the employee, such as sexual harassment.
What is more, there are increased monetary obligations for companies with employees, including tax liabilities such as income or unemployment withholdings. The state of California and the Internal Revenue Service have an inherent bias for individuals to be classified as employees in order to help pad their coffers. It is therefore not surprising that California or the IRS would want persons to be classified as employees, instead of independent contractors.
Recent Court Decisions On Employee vs. Independent Contractor
There have been several recent cases on this issue. Recently, the California Supreme Court decision held that franchisees are not the employees of franchisors, and franchisors cannot be held vicariously liable for the franchisees’ conduct. In another case, however, the court came out on the other side of the issue.
In a recent decision from the 9th Circuit Court of Appeals, Alexander v. FedEx Ground Package Sys., the court held that FedEx drivers in California are not independent contractors, but are employees. In reaching its decision, the court applied California’s right-to-control test, which considers “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”
The court considers additional factors as well, including the type of occupation, skill required for the job, intent of the parties to form an employer/employee relationship, length of service to be performed, method of payment, and whether the work is part of the regular business of the principal.
Applying California’s right-to-control test and considering the various secondary factors, the court found that FedEx has “broad right to control the manner in which its drivers’ perform their work.” Specifically, the court based its decision on the following analysis:
“As a central part of its business, FedEx Ground Package System, Inc. (“FedEx”) contracts with drivers to deliver packages to its customers. The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent.”
Any company seeking to avoid the creation of an employment relationship should minimize the manner and means over which it seeks to control persons providing services for the company.
Contact Janathan L. Allen’s Corporate Law Attorneys
If you have any questions regarding the classification of individuals as employees versus independent contractors, our experienced corporate law attorneys can help you. Failing to understand how individuals should be classified pose significant legal liability and tax obligations for your company. Proper planning can help address and prevent these issues before they arise. Contact Janathan L. Allen, APC today for a free consultation.
