Employee or Independent Contractor? How the Effects of Classifications Impact Employer Liability

Abstract

RECENTLY, awareness has begun to grow about the reclassification of workers as employees or independent contracts across all industries. (1) This heightened awareness is the result of increased enforcement actions and challenges by various governmental entities to the classification of workers as contractors. (2) For example, federal "worker misclassification" legislation has been proposed, (3) and the Internal Revenue Service has launched an initiative focusing on more aggressive audits of companies. (4) Classifying workers as employees or independent contractors can be extremely complex and vital to your case. The stakes are extremely high because consequences can be staggering. (5) A number of states have also increased enforcement. In California, the Port of Los Angeles and Port of Long Beach implemented mandatory "concession agreements" for drayage trucking services at both ports. (6) The Port of Los Angeles provision required motor carriers providing drayage services to transition from using independent contractors to using 100-percent employees within a five-year period, beginning with "at least a 20% transition" to employees by the end of the fourth quarter of 2009. (7) In Maryland, the legislature enacted a Workplace Fraud Act in 2009 effectively creating a presumption that all workers are employees. (8) That Act authorized significant potential penalties to be imposed against businesses for "knowing failure" to properly classify individuals as employees. (9) The importance of these issues also extends to civil litigation. (10) The long established doctrine of respondent superior or imputed negligence provides employers can be held vicariously liable in tort law for the negligence of their employees under various circumstances. (11) The doctrine is premised on the notion one who is in a position to exercise control over the performance of a service must exercise it or bear the loss. (12) An employee is usually regarded as a member of the employer's staff and subject to the control of the employer. (13) The employee's tortious acts committed within the course and the scope of his employment resulting in liability are, therefore, imputed to the employer due to the working relationship existing between the parties. (14) Generally, a business that contracts with an independent contractor is immune from vicarious liability for damages to a third party for the negligent acts of the contractor committed during the performance of the agreement. (15) An independent contractor is commonly defined as one who contracts to perform a certain task or duty independently according to their own means and methods without being subject to the control of the hiring party except as to the ultimate goal or result. (16) Historically in circumstances where this level of independence existed, the imposition of liability on the hiring entity who only exercised limited control over the method in which the contracted work was performed resulted in inequity. (17) As stated in Prosser on Torts, the work is to be "regarded as the contractor's own enterprise, and he, rather than the employer, is the proper party to be charged with the responsibility for preventing the risk, and administering and distributing against it." (18) Therefore, the distinction between an "employee" and an "independent contractor" can become a critical liability issue to the hiring entity. (19) This article will discuss the distinction between employees, independent contractors, and borrowed servants for the purpose of imputing tort liability to employers. Specifically, it will focus on the distinction between these classifications under the purview of two representative states that border one another--Missouri and Illinois. In this context, we provide a series of similar automobile collision cases from Missouri and Illinois depicting common employee-independent contractor situations. As this article shows, similar facts and circumstances associated with the employee-employer relationship may lead to surprisingly different outcomes. …