Concerning federally funded private parties, the FTCA was never intended to reach the employees of all federally funded programs which confer benefits on people. The FTCA does not extend to independent contractors, and if the court determines a defendant in an FTCA claim is not a federal employee, the claim is dismissed from federal court for lack of subject matter jurisdiction. The FTCA's definition of "government employee," includes officers and employees of federal agencies, but specifically excludes "any contractor with the United States." 28 U.S.C. § 2671. Thus, the independent contractor exception to the FTCA often bars federal government liability and denies FTCA "protection" to the defendant party. The independent contractor is thereby liable for damages as any private person.

What, then, determines whether a defendant is a federal employee or an independent contractor? This is a factual determination conducted on a case by case basis. The critical element in distinguishing an "employee" of the federal government from a "contractor" for purposes of the FTCA is the power of the federal government to control the detailed physical performance of the contractor. To decide whether an entity is an independent contractor of the United States, a court analyzes the degree of control exercised by the United States, and to be liable, the federal government must have supervised the day- to-day operations or controlled the detailed physical performance of the contractor. In other words, the federal government must do more than fund the operation to be liable in tort under the FTCA. The burden of proof will be on the plaintiff to show that the government should be liable for tort damages because the defendant is a government employee.

The federal government’s degree of control over the employee is the main element courts analyze, but not the only one. Other important elements include the method of pay, the intent of the parties, who pays the social security tax, who provides liability insurance, and who supplies the tools and materials used in the work. Lilly v. Fieldstone, 876 F.2d 857 (10th Cir. 1989). This analysis is widely used by courts to determine worker status for jobs ranging from medical care to building maintenance to janitorial services.

An example of this analysis and how complex it can be is Linkous v. U.S., 142 F.3d 271 (5th Cir. 1998). The plaintiff, a military dependent, sued the U.S. for injuries received during medical treatment at an army hospital. The defendant- doctor was compensated on a fee-for-service basis, had to provide her own liability insurance, and provided her own nurse. Yet she used the military facilities and equipment, abided all military medical regulations, and used army personnel for secretarial work. The court decided that the doctor was not a federal employee, and dismissed the claim for lack of subject matter jurisdiction. The crucial elements in the decision were: the hospital exercised no control over the medical services the doctor provided to her patients; the doctor was engaged in a specialized occupation requiring a high degree of skill; she was paid on fee-for-service basis, rather than annual salary like military doctors; parties did not believe they were creating an employer-employee relationship, as evidenced by their contract. Thus, this is an often difficult and unpredictable determination.

As noted above, a program does not become a government institution simply because the government contributes funding. For example, a community action agency, a nonprofit corporation fully funded under the Economic Opportunity Act and receiving "in kind" contributions to supply the 20% local support which the agency is required to receive to qualify for federal grants, was not an "instrumentality or agency of the United States" and its employees were not federal employees, for purposes of the FTCA. Therefore, a child injured while riding in an automobile returning from an outing sponsored by the center could not recover from the federal government under the FTCA. U.S. v. Orleans, 425 U.S. 807 (1976).

An interesting example involved human growth hormone treatments administered to a child through a program funded by federal grants. The treatments allegedly caused damage to the individual, and she eventually died years later. Her husband brought suit against the US government for wrongful death under the FTCA and a failure to warn of the dangers of the treatment. The failure to warn claim was dismissed as a discretionary function. The wrongful death was dismissed under the FTCA independent contractor exception. The National Institute of Health fully funded and ultimately controlled the program, but its day- to-day control of the program was not sufficient to overcome the independent contractor exception. The administrators of the program never became government employees, and could not be subject to an FTCA suit.

The federal government hires private parties to perform such a vast array of services that the independent contractor exception to the FTCA has implications in many types of personal injury tort actions, including the more mundane "slip- and- fall" type cases. In all of these cases, the court analyzes the relationship between the government and the tortious employee, looking especially at the degree of government control and the terms of the contract. In Williams v. U.S., 50 F.3d 299 (4th Cir. 1995), a company hired to clean and maintain an office leased by the United States was deemed an independent contractor and not a federal agent or employee under the FTCA. The United States was therefore not liable for the company's alleged tortious conduct which caused a slip-and-fall injury in the building. The contract between the company and the United States provided that the company was responsible for ensuring the floors were clean and slip-resistant and the government neither supervised nor controlled the day-to-day operations or custodial duties.

In contrast, a negligent janitor was found to be a government employee in Resendez v. U.S., 993 F.2d 884 (9th Cir. 1993). There, the employee was hired to maintain a post office. The main reason for the court's finding was that the postmaster was the janitor's supervisor. As such, he told the janitor how and where to clean, and had the authority to let the janitor know if he was doing a good or bad job and to adjust his salary accordingly. Further, the janitor only used the post office's supplies and was paid hourly.