The
protections and obligations of employment laws generally extend to “employees”
but not “independent contractors.” While it may be tempting to try to avoid the
costs and responsibilities associated with employees by calling them
“independent contractors,” the courts and agencies that enforce employment laws
do not rely on the label “independent contractor.”
The
Bureau of Labor and Industries (BOLI), like the U.S. Department of Labor and
the courts, uses criteria that have been established through previous court
cases to take a close look at the actual realities of the relationship. For
purposes of wage and hour law, BOLI uses the “economic realities test” to
determine whether there is an employment relationship.
This
test applies the following six factors to gauge the degree to which a worker is
economically dependent upon an alleged employer, with no single factor being
determinative:
1.
The degree of control exercised by the
alleged employer;
2.
The extent of the relative investments of the
worker and the alleged employer;
3.
The degree to which the worker’s opportunity
for profit and loss is determined by the alleged employer;
4.
The skill and initiative required in
performing the job;
5.
The permanency of the relationship; and
6.
The extent to which the work performed by the
worker is an integral part of the alleged employer’s business.
BOLI
utilizes a different test, the “right-to-control test", to determine
whether a given worker is an employee or an independent contractor for purposes
of civil rights laws.
In
determining whether a worker is an independent contractor or an employee for
purposes of determining whether an unlawful employment practice has occurred,
the courts and BOLI apply these factors:
1.
Direct evidence of the right to, or the
exercise of control;
2.
The method of payment;
3.
The furnishing of equipment; and
4.
The right to fire.
All
of the factors do not need to coincide to determine whether a given worker is
an employee. In such cases, the weight or strength of the factors which are in
evidence will be considered.
Some
civil rights statutes protect not only workers, but also job applicants and
customers. In those situations, it would not matter whether an individual is an
independent contractor or employee.
It
is also important to remember that other state agencies base their
determinations on whether a worker is an independent contractor or an employee
on different factors than BOLI. For example, ORS 670.600 is an Oregon statute that defines an "independent
contractor" for the Department of Revenue, Employment Department,
Construction Contractors Board and Landscape Contractors Board. These agencies
require that the person performing the work meet all the criteria of this law
in order to be considered an independent contractor.
FAQs
Q: What test is to be applied to
determine whether a worker is an employee or an independent contractor?
A:
The tests applied by the courts and regulatory agencies exist to gauge whether
a worker who provides services is operating an independent business. They do
this primarily by weighing facts to determine (1) whether the worker is free
from direction and control and/or (2) whether the worker is, as a matter of
economic reality, independent of the business to which services are being
provided.
Q: What happens when an employee is
misclassified as an independent contractor?
A:
There are several potentially expensive costs in misclassifying an employee as
an independent contractor. Often, state agencies are required by law to assess
back taxes, penalties and interest in cases of misclassification. Employees who
were not properly paid wages may also seek back wages, penalty wages and
interest through BOLI or the courts. Additional civil penalties may be assessed
if minimum wage and overtime claims are involved.
Q: How can I be sure my independent
contractors won’t be classified as employees?
A:
Generally, the courts and regulatory agencies will consider workers to be
employees unless they meet the definition of an independent contractor. It is
critical, therefore, that you compare the reality of your relationship to an
independent contractor with the various tests for an independent contractor.
BOLI’s tests as well as the criteria of ORS
670.600 are available by way of the links listed above. The IRS also has
classification criteria available online at https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
Q: Does it make a difference if I
have a contract and report income under a Form 1099?
A:
The determination will depend on a consideration of the facts of the entire relationship
and not a job title. A contract, even if it correctly captures the intent of
the parties involved, will not suffice if the facts of the matter do not show
that the worker in question satisfied the legal criteria required of an
independent contractor.
April
2018
DISCLAIMER
Nothing on this
website is intended as legal advice. Any responses to specific questions
are based on the facts as we understand them, and not intended to apply to any
other situations. This communication is not an agency order. If you
need legal advice, please consult an attorney. We attempt to update the
information on this website as soon as practicable following changes or
developments in the laws and rules affecting Oregon employers, but we make no
warranties or representations, express or implied, about whether the
information provided is current. We urge you to check the applicable
statutes and administrative rules yourself and to consult with legal counsel
prior to taking action that may invoke employee rights or employer responsibilities
or omitting to act when required by law to act.
TECHNICAL ASSISTANCE FOR EMPLOYERS
800 NE OREGON STREET, STE 1045
PORTLAND, OR
97232
971-673-0824
THIS INFORMATION IS AVAILABLE IN AN ALTERNATE FORMAT