Independent Contractors or Employees? Make Up Your Mind
EnCana Oil & Gas company has been sued by six alleged “independent contractors”, for unpaid overtime as well as for benefits. The claimants assert that they were misclassified as independent contractors, when they should have been treated as employees.
These workers were called “independent contractors,” but what you call a worker is irrelevant—the Department of Labor and the courts look to the reality of the worker-employer relationship to determine whether someone is an independent contractor or an employee. Tests have been developed for classifying workers as one or the other, centering around the degree of control exercised by the employer over the worker (more control, more likely to be an employee) as well as the degree to which the worker is economically independent of the employer (more independence, more likely to be an independent contractor).
There is no “bright line” separating independent contractors from workers. Instead, each worker’s situation has to be evaluated, based on a number of factors or criteria put out by the Department of Labor in fact sheets and in online compliance assistance. (Note: the IRS has put out its own, similar-but-not-identical criteria for determining when someone is an independent contractor for tax purposes.)
However, sometimes , you don’t need to apply multi-factor tests; sometimes, you need to simply apply a little common sense—which, seemingly, EnCana failed to do. The problem for EnCana—the “smoking gun” in this case, which may conclusively establish their liability—is that they had employees performing the same tasks in the same way as the “independent contractors.” According to the lawsuit, the only difference between the employees and the independent contractors was what they were called and how they were paid.
If that was true, then it’s hard to see how EnCana has a legal leg to stand on—the same position can’t be simultaneously be held by employees and independent contractors, but that’s essentially what EnCana was claiming. Instead, if a certain employer-worker relationship exists for that position, all who perform those functions should be treated the same—you can’t arbitrarily call some of them contractors and refuse to pay overtime or provide benefits while others are treated as employees.
EnCana’s case is a cautionary tale for all businesses. If the only difference between your employees and your independent contractors is whether you’ll hand them a 1099 or a W-2 at the end of the year, you may be setting yourself up to be sued.
