By Any Other Name
No matter what workers are called, their status and treatment as employees are subject to a variety of fact-based tests
By Phillip R. Maltin
Phillip R. Maltin is senior counsel in the litigation department of Konowiecki & Rank, where he specializes in employment and business litigation. He presently serves as an adjunct professor of health law at the University of La Verne and as a deputy city attorney in the criminal division through the Los Angeles County Bar Association’s Trial Advocacy Project.
Many employers believe that by classifying their employees in alternative ways they will be able to reduce their labor costs and avoid providing employee benefits. One method requires an agreement between a hirer and a worker that defines the worker as an independent contractor. A second involves the leasing of personnel (referred to as contingent workers) by the hirer from staffing companies that generally retain the personnel as employees. Unfortunately, by avoiding the employer-employee relationship and treating workers as independent contractors or the employees of a staffing company, a hirer is incurring significant legal risks along with the practical benefits—and the risks associated with misclassifying workers can overrun the savings.
Hiring independent contractors and contingent workers has a place in today’s workforce. Nevertheless, the subterfuge accompanying the miscategorization of workers is becoming well known: Workers who meet the requirements for being classified as a company’s employees are deemed either independent contractors or employees of the staffing company that places them. The parties usually enter into detailed written contracts describing their relationship and delineating their responsibilities. Ironically, the details of the agreements are substantially less important than how the parties act, because courts look beyond contractual formalities to determine whether a hirer is legally a worker’s employer.1 The mere incantation in an agreement that a party is an independent contractor is not sufficient to establish that type of relationship.
Furthermore, in response to the growing practice of using independent contractors and contingent workers, courts appear to be scrutinizing these arrangements as never before. The Ninth Circuit Court of Appeals recently observed, without admiration, that “[l]arge corporations have increasingly adopted the practice of hiring temporary employees or independent contractors as a means of avoiding payment of employee benefits, and thereby increasing their profits.”2
The defining factor of the employer-employee relationship is control: The employer retains the right to control the business activities of its employee. The employee must follow the employer’s lawful work directives or bear the consequences of insubordination.
In contrast, an independent contractor must be independent. With an independent contractor, a hirer only has the authority to contract for a product or service, such as placing drywall in a construction site, preparing tax forms, or providing legal services. The independent contractor is in control of how the result is achieved.
The contingent workforce is a relatively new development comprising 1) temporary help services, 2) employee leasing, 3) payrolling arrangements, and 4) managed services.3 Contingent workers can be employees of either the staffing company that supplies them, the company that receives their services, or both. Hirers, however, frequently retain the services of a contingent worker expecting the worker to function as an independent contractor.
Temporary help is the most common category of contingent workers. A staffing agency will hire employees and assign them to a client to support or supplement the workforce of the client, usually when regular employees are absent, temporary skill shortages arise, or seasonal business cycles increase workloads. The client and the temporary worker typically embrace the traditional aspects of an employer-employee relationship, though the staffing agency retains the payroll obligations.
Employee leasing occurs when a staffing agency transfers all or part of its existing workforce to a client. The client business supervises the workforce and administers the payroll, benefits, and other human resource functions. A payrolling arrangement arises when a hirer selects a worker but a third party performs the personnel functions commonly associated with an in-house human resources department.
Managed services are situations in which a hirer arranges for a staffing company to assume the full operational responsibility of a specific business function. The most common examples of managed service arrangements arise when a staffing company takes responsibility for a company’s mailroom, photocopy center, security services, and maintenance. In these situations, the staffing company usually supervises the contingent workers.
Businesses have myriad good reasons for wanting to hire independent contractors:
- The hirer will realize reduced labor costs, because the hirer does not supervise the contractor. Cost overruns are subject to the parties’ agreement and can be passed to the contractor. (An employer, on the other hand, may not charge an employee for expenditures or losses the employee causes or the employer incurs.4 )
- The hirer pays a flat fee and is not responsible for the independent contractor’s “overtime” work.5
- Independent contractors are responsible for paying their own workers’ compensation premiums.6 The hirer is not liable for on-the-job injuries to the independent contractor.7
- Independent contractors do not qualify for employee benefits under the Employee Retirement Income Security Act (ERISA)8 and are not entitled to vacation pay, participation in a 401(k), employee stock purchase plans, and company-sponsored insurance programs, such as health and disability.9
- Independent contractors generally cannot bring statutory discrimination-based actions against the private parties who hire them.10 (The Fair Employment and Housing Commission maintains that the Fair Employment and Housing Act (FEHA) does not apply to independent contractors.11) Nevertheless, an amendment last year to the Unruh Civil Rights Act12 imposes liability upon a hirer of an independent contractor when the hirer discriminates against or harasses the independent contractor.
- Independent contractors cannot assert Tameny claims for wrongful termination in violation of public policy.13
- The hirer of an independent contractor typically is not liable to third parties for the injuries a contractor causes.14 One exception is that an employee of an independent contractor may sue the business or person who retained the contractor for negligent hiring.15
||The benefits of a contingent workforce are considerable as well. A contingent workforce may lower the labor costs of the recipient business. Employment attorneys and human resources professionals confirm, at least anecdotally, that hiring long-term contingent workers and independent contractors saves money. Some statistics appear to confirm these savings, at least in the short term. For instance, a survey conducted by the Bureau of Labor Statistics revealed that workers paid by temporary employment agencies receive lower rates of health insurance and pension coverage than traditional workers,16 indicating that contingent workers receive less compensation for the same work that regular employees perform. Presumably, this savings is passed on to the recipient business.
The recipient business also reduces administrative costs, because the staffing company provides the workers with wages and benefits. Furthermore, because the staffing company is the purported employer, a hirer may be relieved of the same legal responsibilities for contingent workers as the hirer is for true independent contractors.
Consequences of Misclassification
Employers expose themselves to harsh state and federal tax penalties when they mischaracterize employees as independent contractors or contingent workers and deny them employee benefits. This is true even if the misclassification is accidental. These penalties result generally from audits by either the Internal Revenue Service or California’s Franchise Tax Board for failure to pay payroll taxes. In fact, the two agencies have an incentive to uncover and penalize misclassification because reclassification increases the government’s revenue.
For example, the Internal Revenue Service can sting an employer with assessments and penalties if it deems that reclassification is appropriate. The employer’s liability will include:
- The full amount of the worker’s income tax that the employer should have withheld.17
- Both the employer’s and the employee’s portions of the Federal Insurance Contributions Act (FICA) tax (Social Security and Medicare).18
- Payment of the Federal Unemployment Tax Act (FUTA) tax,19 with a credit for taxes paid to the state of California for unemployment insurance.20
- A penalty of up to 25 percent of the amount due, unless the failure to pay is due to “reasonable cause and not due to willful neglect.”21
||Penalties can be assessed against both the business and its corporate officers.22
Strikingly, an employer is not entitled to an offset for tax payments that the worker may have made before the IRS’s reclassification. Indeed, the IRS may collect the taxes twice—once from the worker and once from the employer.23
Federal penalties can increase if the IRS deems the misclassification negligent, careless, reckless, or intentional.24 Under these circumstances, the IRS will impose an additional penalty of 20 percent of the amount of the underpayment.25 If, however, the IRS deems the misclassification unintentional, the employer may find relief under Internal Revenue Code Section 3509, which sets the employer’s liability at 1.5 percent of the total wages paid and 20 percent of the employee’s FICA payment. The percentages increase if the employer had failed to comply with tax return reporting requirements.
Intentional mischaracterization also enhances state-imposed penalties26—some of which are criminal.27 California’s Franchise Tax Board can impose separate penalties and assessments for the same misclassification, making a mistake doubly expensive. State assessments include 1) unemployment insurance contributions,28 2) disability insurance contributions,29 3) income tax withholding30 and interest,31 and 4) penalties.32
Employers must plan for and protect against reclassification. Revenue Procedure 85-1833 relieves “employers of the burden of surprise or uncertain imposition of retroactive tax liability resulting from an increase in IRS employment-status audits.”34 It prevents the IRS from reclassifying an independent contractor as an employee if three conditions are met. First, the taxpayer must have filed all required tax returns consistent with independent contractor status. Next, the hirer must not have treated workers holding similar positions as employees. Finally, the employer must have had a reasonable basis for treating the worker as an independent contractor. Revenue Procedure 85-18 defines a “reasonable basis” as 1) a judicial precedent or administrative precedent, 2) a past audit finding, or 3) a longstanding practice of a significant segment of the industry in which the independent contractor worked.35
Perhaps even more intimidating than the tax consequences for hirers is their exposure to civil liability and legal expenses from administrative actions and lawsuits filed by misclassified workers. The liability can include unpaid overtime compensation and employee benefits that were not received, such as 401(k) contributions, vacation time,36 employee stock purchase plan participation, and insurance coverage.37 Anyone misclassifying employees or contingent workers and denying them employee benefits runs the risk of liability under ERISA, which includes an award of attorney’s fees if the worker prevails.
Recent examples are instructive. In a highly publicized class action lawsuit against Microsoft, a class of contingent workers sued to recover the employee benefits that they never received, including 401(k) contributions and the right to participate in Microsoft’s employee stock purchase plan. The matter settled at the end of last year for $97 million.38 In November 2000, Allstate settled a similar lawsuit for $19.5 million.39 Early this year, Time Warner settled an action against it by the U.S. Department of Labor for $5.5 million.40
Independent contractors can claim that they are, in fact, employees of a hirer; similarly, contingent workers can assert that they are the joint employees of the staffing firm and the recipient business. The party most frequently and most severely damaged by the misidentification is the employer.
Some tests for determining whether a worker is an independent contractor are well established and operate as effectively in today’s employment market as they have for generations. Other tests are recent developments. Practitioners must carefully consider which test to use in determining whether a particular worker is an employee, independent contractor, or nonemployee contingent worker.41
The IRS Test
The IRS’s comprehensive, 20-point test for determining whether a worker is an employee for whom the employer must pay federal employment tax is the most widely known version of these tests.42 The test is useful in analyzing relationships in diverse contexts, although it has its detractors, who point to its unavoidable subjectivity. This should not detract from the effectiveness of the test as the starting point for an inquiry into whether workers are correctly classified.
The 20 factors fall roughly into three categories in descending order of importance. The first is whether the hirer exercises physical (or behavioral) control over the worker’s labor. The behavioral control inquiry focuses on whether the hirer has the right to direct how a job is performed. It looks at whether the hirer may direct both the goal of the job and how to achieve it. The second is whether the hirer exerts economic control over the worker. The financial control analysis surveys the economic components of the parties’ relationship. For instance, the IRS will evaluate whether the worker has a significant financial investment in the project, whether the hirer reimburses the worker’s expenses, and whether the worker’s independent judgment may affect the worker’s profits. The third category is how the parties characterize their relationship.43 Two typical issues are whether the parties have a written agreement and whether the worker receives employee benefits.44
The more frequent the answer to the following 16 questions is affirmative, the more likely the worker is an employee and not an independent contractor:
1) Is the worker required to follow the hirer’s instructions about when, where, and how he or she is to work?
2) Does the hirer train the worker to perform the services in a particular way?
3) Are the worker’s services integrated into the business operations generally, which would show that the worker is subject to direction and control?
4) Is the worker providing personal services to a hirer who is interested in the methods used to accomplish the results?
5) Does the worker have assistants whom the hirer supervises and pays?
6) Do the hirer and worker have a continuing relationship?
7) Are the worker’s hours set?
8) Is the worker required to devote substantially full time to the hirer?
9) Is the work performed on the hirer’s premises?
10) Is the worker required to perform services in an order or sequence set by the hirer?
11) Is the worker required to submit regular or written reports?
12) Does the worker receive payment by the hour, week, or month (which the IRS considers evidence of an employer-employee relationship)?
13) Does the hirer control and pay the worker’s business and/or traveling expenses?
14) Does the hirer furnish tools, materials, and other equipment sufficient to show control?
15) Does the hirer have the right to discharge the worker?
16) Does the worker have the right to end the relationship with the hirer without incurring liability?
||Affirmative answers to the following four questions—in tandem with negative answers to the 16 questions above—help to establish an independent contractor relationship:
1) Did the worker invest in his or her own facilities?
2) Can the worker realize a profit or suffer a loss as a result of his or her services?
3) Does the worker perform more than de minimis services for a number of unrelated persons or firms?
4) Does the worker make his or her services regularly available to the general public?
||The 20 factors vary in importance depending upon the occupation and the factual context.
Three Tests Applicable in California
While several different tests for independent contractor status apply in California,45 three tests prevail: the common law test, the economic realities test, and the Borello test. Each applies in delineated legal contexts, and each has developed over time to further public policy.
The common law test is the principal test in California for distinguishing independent contractors from employees.46 With tort policy in mind, courts developed the California common law test to determine whether a hirer is liable for a worker’s actions.47 The test focuses on who “control[s] the details” of the worker’s service.48
Courts, however, have been realistic about the role supervision plays in determining a worker’s status. Judge Learned Hand wrote that “[s]ome…supervision is inherent in any joint undertaking, and does not make the contributing [workers] employees.”49 Similarly, the lack of supervision that arises from carving out a discrete task from an integrated enterprise does not create independence. For example, workers who used their own tools to strip meat from the bones of slaughtered cattle were not independent contractors because their work was only one of “a series of interdependent steps” in the process from slaughter to meat packing.50 Thus, in some instances, “determination of the relationship does not depend on…isolated factors but rather upon the circumstances of the whole activity.”51
Courts designed the economic realities test to take into consideration the entire business enterprise and the parties’ relationship.52 It typically applies in the federal context and arose to further “social legislation” that protects employees.53 The test focuses on whether, as a matter of economic reality, the workers are dependent upon the business to which they render service.54 The principles guiding this test are “devoid of technical concepts”55 and expand the reach of a worker’s statutory protection.
Finally, the Borello test, enunciated by the California Supreme Court, stands between the common law test’s fixed categories and the economic realities test’s unrestricted analysis. It emerged in response to increasingly complicated service relationships, for which the common law test was too rigid.56 The Borello test uses the economic realities test to augment the common law test, thus expanding the scope of the employer-employee relationship in light of statutes designed to protect workers. By focusing on the history and “remedial purposes of the [statutes],” the Borello test makes it more difficult for hirers to avoid an employment relationship57 and therefore easier for workers to obtain protection, most notably under the Workers’ Compensation Act.
These different approaches, however, sound a consistent theme: If the hirer controls both the goal of the work and the way in which the worker accomplishes the goal, the relationship is likely employer-employee. Control at a minimum suggests employment; sometimes, however, control establishes employment.
The Common Law Test
The California common law test “arose…to limit one’s vicarious liability for the misconduct of a person rendering service.…”58 It focuses on the degree of control the hirer has over the worker regarding “the manner and means of accomplishing the result desired.”59 So important is the right to control that even if unexercised, it alone establishes the employer-employee relationship.60 In addition to claims of vicarious liability, the test is used in unemployment compensation61 and unemployment contributions62 cases.
The common law test is grounded in the Restatement (Second) of the Law of Agency, which defines a “servant” (or employee) as a “person employed to perform services [for] another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.”63 One shorthand inquiry for determining control is whether or not, if instructions were given, the worker must obey them.64 A hirer’s right to discharge a worker at will—that is, without cause—is compelling evidence of control.65 The common law test continues its inquiry into control using these additional eight factors:
1) Whether the worker performing services is engaged in a distinct occupation or business.
2) The worker’s occupation, with a focus on whether the work is usually done under the direction of the principal or by a specialist without supervision.
3) The skill required in the particular occupation or business.
4) Whether the principal or the worker supplies the instrumentalities, tools, and the place of work.
5) The length of time necessary for the performance of the services.
6) The method of payment, including whether the payment is based on time or the job as a whole.
7) Whether the work is part of the regular business of the principal.
8) Whether the parties believe they are creating an employer-employee relationship.66
||The weight each factor receives shifts with the circumstances: “[T]he individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.”67 Thus, the facts of the relationship, not how the parties characterize them in agreements, control the outcome of the analysis.68 A court will ignore agreements between parties that try to establish an independent contractor relationship if their conduct denotes a common law employment relationship.69
Folklore suggests that an independent contractor relationship can be established merely by shifting the obligation to pay taxes and workers’ compensation premiums from the hirer to the worker. The common law test dispels that myth: “An employer cannot change the status of an employee to one of independent contractor by illegally requiring him to assume burdens which the law imposes directly on the employer.”70
The Borello Test
In some instances, the common law test is too rigid to adequately “evaluat[e] the variety of service arrangements.”71 For those situations, the California Supreme Court enhanced the common law analysis by looking at a statute’s objective and focusing on its remedial purposes.72 Certain statutory schemes transcend “the limitations of the common law, so [their] definitions of the employment relationship must be construed with reference to [their] history and fundamental purposes.”73 The Borello test conditions the common law control test with a “social-legislation analysis”74 that broadens the inquiry to permit a statute that protects employees to apply to workers who may be deemed independent contractors under the common law. It adds an inquiry into 1) what wrong the statute is intended to reverse, 2) whom the statute is designed to protect, and 3) the bargaining “weakness” of each party.75 Borello applies to workers’ compensation,76 Fair Employment and Housing Act claims,77 California wage and hour claims,78 the Agricultural Labor Relations Act,79 and to certain employee health and safety issues.80
The facts of Borello and Sons v. Department of Industrial Relations show how an ambitious employer can attempt to circumvent the obligation to pay workers’ compensation premiums by calling employees independent contractors. It also demonstrates how the plan can fail. A cucumber grower, Borello, hired workers, called share farmers, with whom it entered into independent contractor agreements. The grower split its field into plots and assigned each plot to a different share farmer. Under the agreement, the share farmers decided when to harvest the grower’s cucumber crop; they furnished their own labor and used their own tools. They split the proceeds with the grower and agreed to deem themselves independent contractors. The grower had no field supervisor. The share farmers were responsible for the plants in their assigned plot, which they would tend, hoe, weed, and decide when to water (with a water system the grower controlled). The share farmers set their own hours and decided when to harvest the crop.
The court focused on the entire growing scheme rather than looking only at certain elements of it: “The grower controls the agricultural operations on its premises from planting to sale.…”81 The grower owned the field, chose which crop to plant, cultivated the field through maturity of the crop, and hauled the harvest to the market. It simply assigned one step in an integrated process to the worker “who received incentives rather than direct supervision. It thereby retain[ed] all necessary control over a job which [could] be done only one way.”82 The employer exerted “pervasive control over the operation as a whole.”83 As a result, the share farmers were deemed to be employees. Borello was ordered to provide the share farmers with workers’ compensation coverage and to pay penalties for not having supplied it in the past. The court reasoned that if the share farmers were independent contractors, employers could, by creative contracting, avoid the obligations imposed by California legislation intended to protect employees.84
The Economic Realities Test
The economic realities test enlarges both the common law test and Borello’s social-legislation analysis by inquiring whether the worker is financially “dependent upon the business” to which he or she supplies services.85 Using this test, a court will view the parties’ economic relationship against the backdrop of the social welfare purposes of the statute at issue. Unlike the precise common law analyses, the economic realities test is a macrocosmic inquiry. The aim is to determine the “real” relationship between the parties and expand the protection of a statute designed to protect workers. The economic realities test applies to the Fair Labor Standards Act,86 the Occupational Safety and Health Act,87 the Americans with Disabilities Act,88 and Title VII of the Civil Rights Act of 1964.89
Some courts have attempted to establish multifactor economic realities tests, typically looking at the employer’s right to control the employee, plus 1) the worker’s investment in equipment or materials, 2) whether the services provided require special skills, 3) the permanence of the relationship, and 4) whether the services are an integral part of the hirer’s business.90 However, no one test has emerged. For example, in 1979, the Ninth Circuit used a six-factor test that added to the above list the worker’s opportunity for profit or loss based upon the worker’s managerial skill.91 One year later, the Ninth Circuit applied a broader test comprising five of the six prior factors and adding six new inquiries that focus on how the worker is paid, whether the hirer pays the worker’s social security taxes, how the parties’ end their relationship, whether leave is available, whether benefits are provided, and what type of relationship the parties had intended to create.92
Clearly, the economic realities test gives a court its furthest reach when determining whether a worker is an employee. But it also generates inconsistent results, based on its lack “of technical concepts.”93
Although the common law, Borello, and the economic realities tests were specifically formulated to distinguish between independent contractors and employees, they also apply to the determination of whether a contingent worker is an employee of the hirer or the staffing company.
If a contingent worker is deemed jointly employed by the staffing company and the recipient business, each will be jointly and severally liable to the contingent worker. The key factor in determining whether a recipient business is a joint employer is the amount of control the business exerts, or has a right to exert, over the contingent worker. If the hirer, or its agents, directly controls the means and manner of the contingent worker’s job duties, then the hirer exercises sufficient control to be a joint employer. Strong indicators that the recipient business is a joint employer with the staffing company include whether the contingent worker was hired, trained, supervised, disciplined, or terminated by the recipient business.
The U.S. Supreme Court’s Test
In 1992, in Nationwide Mutual Insurance Company v. Darden, the U.S. Supreme Court established a common law test that applies to ERISA cases94 and was later extended to Age Discrimination in Employment Act cases.95 In Darden, the hirer, Nationwide, asserted that one of its insurance agents had forfeited his retirement benefits by breaching an independent contractor agreement. The court of appeals reversed the trial court’s decision to grant summary judgment to Nationwide. The Supreme Court reversed the court of appeals and ordered it to use the common law test originally stated in Community for Creative Non-Violence v. Reid.96 It also ordered the lower courts not to look at the remedial purposes of the legislation or the parties’ expectations in analyzing whether a statute applies to a case.97
The Court concluded that since Congress supplied no statutory guidance for the term “employee” in ERISA, it must have intended the Reid common law test to apply. The first factor of the 13-step Reid common law test is whether the hirer has the right to control the worker’s methods and results. The Court then set forth the other indicia:
- The skill the job requires.
- The source of the instrumentalities and tools that the worker uses.
- The location of the work.
- The duration of the relationship between the parties.
- The hiring party’s right to assign work.
- The hiring party’s control over the length of the worker’s working day.
- The method of payment.
- Who has the right to hire individuals to assist the worker.
- Whether the work is part of the hiring party’s regular business.
- Whether the hiring party is a business.
- Whether the worker receives employee benefits.
- Who pays the worker’s taxes.98
The common law tests enunciated by the U.S. and California Supreme Courts clearly overlap significantly. When the elements differ, they are consistent in their general inquiry into the functional relationship between the worker and the hirer. With one exception—found in the California common law test but not in Darden—the elements all turn on different aspects of control. Unlike Darden, California looks at whether the parties believed they were creating an employment relationship. Thus the parties’ intentions play a role, albeit one of shifting and frequently minor importance in determining whether an employment relationship exists.
Businesses utilizing independent contractors or entering contracts with staffing agencies should conduct an audit of their categories of workers. The 20-factor IRS test is a good starting point. Most of the 20 factors appear in some form in the California common law and federal Darden analyses. The multiple tests used to determine whether a worker is an employee will supersede contractual arrangements, whether or not the parties had intended by subterfuge to circumvent the employment relationship. The more the parties contort their relationship to appear independent, the more likely neither party will follow the formalities of their agreement. Consequently, neither a regulatory agency that reviews the relationship nor a court will believe that the parties are independent contractors. An employer wishing to retain independent contractors should be certain that the independent contractors actually operate independently.
If an employer wishes to retain contingent workers, efforts should be taken to ensure that the workers remain employees only of the staffing company. The hirer should not select, train, supervise, or discipline the contingent workers. While the recipient company should direct concerns regarding the performance of a contingent worker to the staffing agency, the staffing company alone should discipline or dismiss the worker.
Remember, if the parties act like an employer and an employee, that is how they will be treated by federal and state tax agencies and the courts.
1 Borello & Sons v. Department of Indus. Relations, 48 Cal. 3d 341, 349 (1989).
2 Vizcaino v. Microsoft Corp., 97 F. 3d 1187, 1189 (9th Cir. 1996).
3 The source for the definitions of these terms is the American Staffing Association, a major trade association for providers of contingent workers.
4 Lab. Code §2802.
5 Real v. Driscoll Strawberry Ass’n, 603 F. 2d 748, 754 (9th Cir. 1979) (Fair Labor Standards Act); see Borello, 48 Cal. 3d at 354 (interpreting the California Wage Orders).
6 Lab. Code §§3350, 3353, 3600.
7 Torres v. Reardon, 3 Cal. App. 4th 831 (1992).
8 Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§1002(7) and 1132(a).
9 Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992).
10 Sistare-Meyer v. YMCA, 58 Cal. App. 4th 10, 17 (1997)(stated in dicta with citations to numerous cases).
11 Children’s Hosp. and Health Ctr., FEHC Dec. No. 87-24, 1987 WL 114872, 1986-87 CEB 10 (Fair Employment and Hous. Comm’n 1987); Cal. Code Regs. tit. 2, §7286.5(b)(1). However, this position is not to be applied to independent contractors applying for employment positions who are denied employment for reasons that violate the FEHA. The independent contractor’s status as an applicant generates protection under the FEHA. Sada v. Robert F. Kennedy Med. Ctr., 56 Cal. App. 4th 123 (1997).
12 Unruh Civil Rights Act, Civ. Code §§51 et seq.
13 Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167 (1980); Sistare-Meyer, 58 Cal. App. 4th at 10.
14 Millsap v. Federal Express Co., 227 Cal. App. 3d 425, 430 (1991).
15 Grahn v. Tosco Corp., 58 Cal. App. 4th 1373 (1998).
16 EEOC Notice No. 915.002, Enforcement Guidance: Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms (Dec. 3, 1997).
17 I.R.C. §3403.
18 I.R.C. §§3101, 3111.
19 I.R.C. §3301.
20 I.R.C. §3302.
21 I.R.C. §6651.
22 I.R.C. §6672.
23 Myron Hulen, et al., Independent Contractors: Compliance and Classification Issues, 11 Am. J. Tax Pol’y 13, 28 (1994).
24 I.R.C. §6662.
25 I.R.C. §3402.
26 Unemp. Ins. §§1126, 2117.
27 Unemp. Ins. §2118.5.
28 Unemp. Ins. §982.
29 Unemp. Ins. §984.
30 Unemp. Ins. §1302; Rev. & Tax Code §18663.
31 Unemp. Ins. §1113; Rev. & Tax Code §19521.
32 Unemp. Ins. §§1112, 1126, 13052.5.
33 Rev. Proc. 85-18, 1985-13 I.R.B. 27.
34 General Inv. Corp. v. United States, 823 F. 2d 337 (9th Cir. 1987).
35 Rev. Proc. 85-18, 1985-13 I.R.B. 27.
36 Under California’s Labor Code and the Federal Fair Labor Standards Act, no employer is obligated to provide vacation pay to its employees. However, to the extent that a hirer does provide vacation benefits to its regular employees but not to its independent contractors or contingent workers, and assuming that they have been mischaracterized, the mischaracterized employees may have contract claims for the vacation benefits.
37 See, e.g., Vizcaino v. Microsoft Corp., 173 F. 3d 713 (9th Cir. 1999).
38 L.A. Daily J., Dec. 13, 2000, at 4.
39 Lab. Rel. Rep. (BNA), Nov. 28, 2000, at 1.
40 L.A. Daily J., Jan. 25, 2001, at 1.
41 See Burrey v. Pacific Gas & Elec. Co., 159 F. 3d 388, 392-94 (9th Cir. 1998).
42 Rev. Rul. 87-41, 1987-1 C.B. 296; see also 26 C.F.R. §31.3121(d)-1 (2001).
43 Rev. Rul. 87-41, 1987-1 C.B. 296.
44 I.R.S. Small Business and Self-Employed Community, Subcontractors (2001), available at http://www.irs.gov/prod/smallbiz/construction/education_contractor.htm.
45 Some statutes that define the term “employee” spawn their own tests. See Metric Man, Inc. v. Unemployment Ins. Appeals Bd., 59 Cal. App. 4th 1041, 1047 (1997).
46 Borello & Sons v. Department of Indus. Relations, 48 Cal. 3d 341, 350 (1989).
47 Id. at 350.
49 Radio City Music Hall Corp. v. United States, 135 F. 2d 715, 717-18 (2d Cir. 1943).
50 Rutherford Food v. McComb, 331 U.S. 722, 725-26 (1947).
51 Id. at 730.
52 Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33 (citing Rutherford Food, 331 U.S. at 730).
53 Bartles v. Birmingham, 332 U.S. 125, 130 (1947).
54 Real v. Driscoll Strawberry Ass’n, Inc., 603 F. 2d 748, 754 (9th Cir. 1979).
55 Hale v. State of Arizona, 993 F. 2d 1387, 1393-94 (9th Cir. 1993) (quoting Goldberg v. Whitaker House Coop., 366 U.S. 28, 33 (1961)).
56 Borello & Sons v. Department of Indus. Relations, 48 Cal. 3d 341, 350 (1989).
57 Id. at 354-55.
58 Id. at 350.
59 Empire Star Mines Co. v. California Employment Comm’n, 28 Cal. 2d 33, 43 (1946), overruled on other grounds, People v. Sims, 32 Cal. 3d 468 (1982).
60 Empire Star Mines, 28 Cal. 2d at 43.
61 Southwest Research Inst. v. Unemployment Ins. Appeals Bd., 81 Cal. App. 4th 705 (2000).
62 Teiberg v. Unemployment Ins. Appeals Bd., 2 Cal. 3d 943 (1970).
63 Restatement (Second) of Agency §220(1); Empire Star Mines Co., 28 Cal. 2d at 43.
64 Toyota Motor Sales v. Superior Court (Lee), 220 Cal. App. 3d 864, 875 (1990).
65 Empire Star Mines Co., 28 Cal. 2d at 43.
66 Id. at 43-44; see Borello & Sons v. Department of Indus. Relations, 48 Cal. 3d 341, 350-51 (1989). See also BAJI 13.20.
67 Borello, 48 Cal. 3d at 351 (quoting Germann v. Workers’ Comp. Appeals Bd., 123 Cal. App. 3d 776, 783 (1981)).
68 Brassinga v. City of Mountain View, 66 Cal. App. 4th 195, 214 (1998) (citing Hoppmann v. Workers’ Comp. Appeals Bd., 226 Cal. App. 3d 1119, 1125, 277 Cal. Rptr. 116 (1991)).
69 Toyota Motor Sales v. Superior Court (Lee), 220 Cal. App. 3d 864, 877 (1990); see also 26 C.F.R. §31.3306(i)-1(d)-(f) (agreement is of “no consequence”).
70 Toyota Motor Sales, 220 Cal. App. 3d at 878 (requiring worker to pay payroll tax and workers’ compensation insurance premiums is merely the “legal consequences of an independent contractor status not a means of proving it”).
71 Borello, 48 Cal. 3d at 350.
72 Id. at 354-55.
73 State Comp. Ins. Fund v. Brown, 32 Cal. App. 4th 188, 201 (1995).
74 Borello, 48 Cal. 3d at 352.
75 Id. at 353-54.
76 Id. at 341.
77 Fisher v. San Pedro Peninsula Hosp., 214 Cal. App. 3d 590, 608, n.16 (1990).
78 Borello, 48 Cal. 3d at 359.
81 Id. at 356.
83 Id. at 345.
84 Id. at 359.
85 Real v. Driscoll Strawberry Ass’n, Inc., 603 F. 2d 748, 754 (9th Cir. 1979).
86 Biggs v. Wilson, 1 F. 3d 1537 (9th Cir. 1993).
87 Loomis Cabinet Co. v. OSHRC, 20 F. 3d 938 (9th Cir. 1994).
88 Wells v. Clackamas Gastroenterology Ass’n, 2000 WL 776416 (C.D. Or. 2000).
89 Adcock v. Chrysler, 166 F. 3d 1290 (9th Cir 1999) (using economic realities test to interpret contract between the parties, not to interpret statutory meaning of “employee”).
90 Lutcher v. Musicians Union Local 47, 633 F. 2d 880 (9th Cir. 1980); Real v. Driscoll Strawberry Ass’n, Inc., 603 F. 2d 748, 754 (9th Cir. 1979).
91 Driscoll Strawberry Ass’n, 603 F. 2d at 754.
92 Lutcher, 633 F. 2d at 883.
93 Compare Donovan v. Brandel, 736 F. 2d 114 (6th Cir. 1984) (farm workers picking cucumbers not employees of grower) with Driscoll Strawberry Ass’n, 603 F. 2d at 754 (material issue of fact existed as to whether farm workers tending strawberry fields were employees) and Borello & Sons v. Department of Indus. Relations, 48 Cal. 3d 341, 354-55 (1989)(farm workers growing cucumbers deemed employees of grower).
94 Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 321 (1992).
95 Barnhart v. New York Life, 141 F. 3d 1310 (9th Cir. 1998); but see Lilley v. BTM Corp., 958 F. 2d 746 (6th Cir. 1992) (applying the economic realities test).
96 Community for Creative Non-Violence v. Reid, 490 U.S. 321, 322 (1989).
97 In Darden, the court of appeals focused on the “declared policy and purposes of ERISA” to expand the common law test. The intermediate court reasoned that if Darden had 1) a reasonable expectation that he would receive employee benefits, 2) relied on that expectation, and 3) unequal bargaining power, then he was an employee. The Supreme Court rejected this reasoning.
98 Darden, 503 U.S. at 323-24.
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