The difference between an employee and an independent contractor

Colin McCarthy
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Published on May 30, 2013

These days the stock market seems to live or die, grow or deflate, depending on the “employment” report.  How many jobs were created, how many folks are seeking jobless benefits? How many folks are no longer seeking “employment” because they have been out of work so long?

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Whenever these reports are given, I have always wondered (because one naturally wonders this): Does that include “independent contractors”? Would the economy tank if, all of sudden, people were not employees but because “independent contractors” because their employers (I mean the people asking for work to be done) no longer called them employees, but decided to call them “independent contractors” instead?

Why ever would they do such a thing? Well, they could not really, and get away with it. The IRS and your local state government would not really like it, because it might mean less payroll tax and less government services as a result. But one consequence of retaining an independent contractor, rather than an employee, is that if the independent contractor injures a third party by his negligence, the person who hired him is not liable for injuries to third parties.

How we determine who is an employee and who is an independent is frequently a fact determinative question requiring jury analysis and a lot of preparation work. Work that keeps lawyers employed. Kidding aside, it depends on a number of factors but there are two key ones that are usually determinative. They are the hirer’s control over the hired, and whether the hired works only for the hirer or has other gigs.

Let’s use a real-life example. Remember my New Year’s Day spigot fiasco?  Well, the one we fixed in the back yard, with the help of my neighbor handyman, sprang a leak. Rather than do it myself (remember there is probably a rule somewhere against lawyers wielding power tools), I asked my neighbor to do it for me. He had just finished a big job for another homeowner. I invited him to inspect it, and he gave me an estimate: $100 plus parts. He said he would go about it a particular way, go to Home Depot, and get some things he needed.  And he brought his son over to help. A couple of hours later, it was fixed and moved to a better location closer to the garage.

Was this neighbor my employee? Did I exercise any control over the handyman? No.  He told me how he was going to go about doing the work. I didn’t understand half of it but understood that he’d fix it.  Did I tell him how to do the work? Other than that I wanted the leak stopped, I did not really tell him anything, much less how to do it.  Does he do work exclusively for me? It may seem that way given the number of times I require his services, but he doesn’t! He works for others.  These facts, and others, mean he is not an employee — unlike, say, a live-in nanny that would (in my dreams) work exclusively for me, and do what we say with regard to the children.  Next time we’ll talk some cases . . .

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submission do not necessarily reflect the opinions of Robinson & Wood, Inc. or its clients. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.

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Colin McCarthy

Colin G. McCarthy is a partner in the business litigation, products liability, and insurance practice groups at Robinson & Wood in San Jose, California.

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