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Who Is an Independent Contractor? (cont'd)


Classifying Employees

In addition to the extent of control or right of control which the employer may exercise over the details of the work, there are many other factors which are considered by the courts in distinguishing servants from independent contractors. Such factors include:

  1. Whether or not the one employed is engaged in a distinct occupation or business;
  2. The kind of occupation of the one employed, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
  3. The skill required by the occupation of the person employed;
  4. Who supplies the tools and the workplace;
  5. The length of employment;
  6. The method of payment;
  7. Whether or not the work is a part of the regular business of the employer;
  8. The intent of the parties; and
  9. Whether or not the employer is in business.
Accordingly, the master-servant relationship is characterized by an agreement for close supervision or de facto close supervision of the servant's work; work which does not require the services of one highly educated or skilled; the supplying of tools and a workplace by the employer; periodic payment of wages; long-term employment with regular hours; full time employment by one employer; employment in a specific area or over a fixed route; the fact that the work is the regular business of the employer; the fact that the community regards those doing such work as servants; the belief by the parties that there is a master-servant relation; and an agreement that the work cannot be delegated.

On the other hand, an independent contracting arrangement is characterized by little or no supervision of work requiring skill or special education, tools supplied by the one conducting the work, a contract time and price for the work, more than one project for the one providing the service, work performed that is different from the regular business of the employer, work regarded by the community as being done by independent contractors, the intent of the contracting parties that the work be independently contracted, and/or the right of the one doing the work to subcontract part thereof.

One of the most important factors indicating that an employee is a servant rather than an independent contractor is the custom of the community as to the control ordinarily exercised in a particular occupation. This, together with the skill level required, is often conclusive.

However, the duration of employment and method of payment are also important. Thus, highly skilled employees in occupations that resent and even contract against interference, skilled artisans employed to accomplish results with which the employer has neither the knowledge or desire to interfere, and employees regulated through state licensing statutes (such as attorneys and physicians) may be servants if regularly employed and paid on a periodic basis. Since these employees retain liability for their professional decisions, injured third parties may elect to sue either the employer, the professional, or both, depending on the relationship of the injured party to the potential defendants. For example, an employee injured by the company's physician may elect to sue the co-employee physician for malpractice, rather than sue his employer whose liability is limited by workers' compensation laws.

Where the work is done, and who owns the tools and materials used in the work, are also important. If the work is done on the employer's premises with tools and materials supplied by the employer, the inference is that the employee is expected to follow his employer's directions, especially where the tools or materials are expensive.

Finally, it is not determinative that the parties believe that a relationship has a particular status.

The existence of a proprietary agreement such as an agreement to disclose newly-discovered technologies or an agreement not to disclose information to third parties (nondisclosure agreements, see Part II) between the parties is probably sufficient to establish an agency relationship between an independent contractor and the party with whom he contracts. The existence of other agreements which have the effect of giving control over the performance of his duties may convert the relationship into one of master and servant. The agency duties described in Parts I and II are not applicable if and only if the law considers the independent contractor not to be an agent.

The important distinction between servants and independent contracting agents is between service in which the actor's physical activities and time are surrendered to the control of the master and service under agreement to accomplish results or use care and skill in accomplishing results. Those rendering service but retaining control over the manner of doing it are not servants. They may be agents, agreeing to use care and skill to accomplish a result and subject to the fiduciary duties of obedience and loyalty described in Parts I and II, or they may be independent contractors employed to accomplish or use care to accomplish physical results, without fiduciary obligations (such as where a contractor is paid to build a house). Thus, the important distinction between independent contracting agents and nonagents is whether the independent contractor is a fiduciary (see Part I) with respect to matters within the scope of the contract.

The relationships between servants, independent contractors and agents, and the liability associated with each is illustrated in Diagram 1.

Employer liable for negligent
acts in performance of duties
Employer liable for
acts binding him
Employer not
Diagram 1.

As indicated in Diagram 1, an independent contractor may or may not be an agent. Independent contractors include all persons who contract to do something for another but are not servants. Therefore, an agent who is not a servant is an independent contractor when he contracts to act on account of the principal.

Diagram 1 also illustrates that servants and independent contractors who are also agents may legally bind the employer in transactions with third parties. For example, if an engineer on a construction job orders a truckload of structural steel, the employer will be obligated to pay for the order. This duty to fulfill an agent's transactions is mirrored by the agent's duty of scrupulous honesty that is discussed in Parts I and II of this series.

Finally, Diagram 1 illustrates that liability for injury to third parties shifts progressively from the service contractor to the service provider as the relation shifts from master-servant to principal-independent contracting agent to contractor-nonagent. For example, a servant, because of his position, may not be responsible for mistakes made by him as to facts upon which his authority depends, whereas an independent contracting agent would. Thus, if a backhoe operator is instructed by his employer to dig a ditch in a certain location, the employer would be liable if he ruptures a gas pipe and burns down the neighborhood. However, if the backhoe operator is an independent contractor who has agreed to design and install a drainage system, then he will be liable for not properly identifying subsoil structures. This isolation of liability upon the service provider not only increases the likelihood that he, rather than the service contractor, will be sued, but it places the full burden of paying the damages upon him.

However, only independent contractors who are not fiduciaries, who have no power to make the one employing them a party to a transaction, and who are not subject to control are not agents. The term "nonagent independent contractor" is used colloquially to describe builders and others who have contracted to accomplish physical results for another without acting as a fiduciary or under supervision, but the status is rarely found in employment situations.

Since an independent contractor may or may not be an agent, the status of independent contractor does not necessarily relieve the individual of the fiduciary and common law duties outlined in Parts I and II. In most situations, the law considers an independent contractor employed to provide a service, information, or advice to be an agent, and the agency duties of loyalty and obedience remain in full force.

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