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Independent Contractor versus Employee - Know the Difference!

Courts have long acknowledged that misclassifying an employee as an independent contractor can be a costly slip-up for a business. In making this employee/independent contractor classification, the California Supreme Court has noted that employers may consider (i) whether the work is part of the hiring entity's regular business, (ii) the degree of skill required for the work, (iii) whether the worker provides his or her own tools and equipment, (iv) whether the worker maintains his or her own business, (v) the length of time of the job, (vi) the method of payment, and (vii) whether the parties believed that they were created an employment relationship. See Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522, 533 (Cal. 2014).

Many businesses believe that a mutually executed independent contractor agreement will be adequate to protect against misclassification penalties; however, as one recent case out of Northern California highlighted, an independent contractor agreement, by itself, may not be sufficient.

In Sawin v. The McClatchy Co., No. 34-2009-00033950 (Cal. Super. Ct. Sept. 22, 2014), the newspaper owned by The McClatchy Co. (The Sacramento Bee) allowed the newspaper carriers to pick up the newspapers at any time and set their own schedules as long as the newspapers were delivered within a specific timeframe. Carriers were also allowed to hire their own employees, purchase their own supplies, and wear their own clothes. The carriers were subject to renewable, annual contracts and were required to provide their own vehicles and insurance for the delivery of the newspapers. Despite satisfying many of the essential elements of the independent contractor classification, the court found that the carriers should have been classified as employees rather than independent contractors.

At the heart of the court's finding was the fact that the carriers were indispensable to the newspaper's business operations. The court noted that the carriers operated in and out of the newspaper's warehouses, received training regarding their duties from the newspaper, and had their performance audited by the newspaper. The court also noted that newspaper carriers are not highly skilled workers, nor did they supply special equipment in the furtherance of their contracting responsibilities. It is important to note that the court also found the fact that the carriers did not promote themselves as an independent delivery service to be convincing evidence. Specifically related to the independent contractor agreements, the court noted that the carriers were denied the right to negotiate the terms of the contract and were subject to the newspaper's at-will termination provision. Thus, the court found that, despite attempts to resemble independent contractors, the newspaper carriers were actually employees entitled to mileage reimbursement, as well as unpaid minimum wages, overtime, taxes, penalties, and other employee benefits.

To avoid these costly mistakes, businesses should regularly consult with their business attorneys and evaluate their business practices to ensure proper employee classification. If you have independent contractors or employees and want to protect against similar misclassification penalties, contact the experienced business attorneys at The Loftin Firm today.

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