Employee or Independent Contractor? And Why It Matters

By John H. Patton

adobe_acrobat_icon To download a PDF of the newsletter, click here.

Many small businesses owners who hire others to work for them don’t spend much time thinking about the liability risk that can come with the decision. That isn’t really abnormal or careless; it’s human nature for people not to assume the worst is going to happen, and that extraordinary things will seldom occur. But lawyers deal with the “extraordinary” and the “worst” all the time, albeit usually in hindsight, when the events have already unfolded and a lawsuit or safety violation citation is on the horizon. Lawyers know from experience that a bit of thought and planning at the outset of a project can make a significant difference if the “worst” does happen.

When you hire someone to work for you, the decision of whether the worker is going to be treated as an employee, as opposed to an independent contractor can make a real difference in terms of safety obligations, exposure to liability, and possibly the availability of insurance coverage. This seemingly minor distinction becomes especially important when the act or omission of that worker results in an injury or damage to property – “the worst case scenario.”

Generally, an “employee” is someone who works for another, usually on a regular basis, and does so under the direction of an “employer.” There certainly is nothing wrong or unusual about that process, since most of the people in this country work for someone else as an employee. But in the eyes of the law, if a person who is an employee is exposed to a safety risk, or does something that causes injury to another or to property, and the act or omission happens in the ordinary course of the employment, then the employer is typically held responsible for the consequences of the employee’s conduct.

All sorts of people can be treated as employees, and in many situations the law favors viewing them as such, because that allows someone else (i.e., the “employer”) to be held responsible for the safety violation, and they or their insurance can be looked upon to make whole someone who is injured by the employee’s conduct. For example, as far-fetched as it may sound, housecleaners and gardeners have been held to be employees in certain situations, and those that hired them were legally responsible for the consequences of actions within the scope of their employment.

In making the employee/contractor determination, the law looks at an array of factors — things like whether the person worked for a salary, or received benefits, or worked regular or periodic hours. The most important, but still not controlling factor, is the degree of supervision exercised by the person doing the hiring. The more supervision and control, the more likely the worker will be found an “employee.”

On the other hand, one who hires an independent contractor to perform a job is usually not responsible for the acts or omissions of the contractor, although there are significant exceptions and variations on this rule. The idea is that where the worker acts “independently,” the actions in the normal course of the hiring are almost completely controlled by the person doing the work, and responsibility for those acts and omissions should rest with the worker, not the innocent person who hired them to perform a job. Of course, if the person doing the hiring has reason to know that the worker has a propensity toward dangerous conduct, or that some peculiar danger may exist that ordinarily would not be appreciated by the worker, then liability may still attach to the hirer, as well as the worker. But if the worker is really operating on a job, especially one within his expertise, and calling his own shots on how that work is performed, the law usually treats him as an independent contractor, and only he will be held responsible for his negligent acts and omissions. In other words, the person that hired him (and probably his insurance carrier) is off the hook.

This consideration should matter to business persons who engage people to do projects or jobs. Some tasks argue for an employee’s touch under close supervision; others tasks can be handled well – and often less expensively – by contractors. Either way, there are ways and reasons to structure the relationship so it will more likely be treated in the desired way.

A good understanding of the process, and perhaps consultation with legal counsel at the outset, can be critical to handling the hiring in a manner that best fits the needs of the hirer under the particular circumstances of the situation. Understanding and appreciating the issue is a terrific start.

bar

John H. Patton, a partner at Patton & Sullivan LLC, specializes in business and real estate law at the trial and appellate levels. He is also co-counsel of record in CRV v. United States.

Back to Resources