59 Legally speaking, what is an “employee”?

When a business hires someone to perform a job, law in the United States differentiates between two types of relationships that may exist: that of an employee versus an independent contractor. An employee is someone who performs services for a business, when the business controls “what will be done and how it will be done.”^[1] In contrast, someone is an independent contractor “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”^[2] As the name implies, the independent contractor is legally autonomous. A plumber salaried to a building contractor is an employee and agent of the contractor. But a plumber who hires himself out to repair pipes in people’s homes is an independent contractor. If you hire a lawyer to settle a dispute, that person is not your employee or your servant; she is an independent contractor.^[3] 

This distinction between employee and independent contractor has important legal consequences for taxation, workers’ compensation, and liability insurance. For example, employers are required to withhold income taxes from their employees’ paychecks. But payment to an independent contractor, such as the plumber for hire, does not require such withholding. Deciding who is an independent contractor is not always easy; there is no single factor or mechanical answer. In Robinson v. New York Commodities Corp., an injured salesman sought workers’ compensation benefits, claiming to be an employee of the New York Commodities Corporation. But the state workmen’s compensation board ruled against him, citing a variety of factors. The claimant sold canned meats, making rounds in his car from his home. The company did not establish hours for him, did not control his movements in any way, and did not reimburse him for mileage or any other expenses or withhold taxes from its straight commission payments to him. He reported his taxes on a form for the self-employed and hired an accountant to prepare it for him. The court agreed with the compensation board that these facts established the salesman’s status as an independent contractor.

The factual situation in each case determines whether a worker is an employee or an independent contractor. Neither the company nor the worker can establish the worker’s status by agreement. As the North Dakota Workmen’s Compensation Bureau put it in a bulletin to real estate brokers, “It has come to the Bureau’s attention that many employers are requiring that those who work for them sign ‘independent contractor’ forms so that the employer does not have to pay workmen’s compensation premiums for his employees. Such forms are meaningless if the worker is in fact an employee.”

Courts may look to various factors such as the amount of control over the work, who provides the tools used to accomplish the work, how the individual is paid, the level of skill taken to complete the work, the duration of the relationship, and so on. There are often not clear answers, as in the continued litigation in the 2010’s over whether Uber drivers are employees or independent contractors. On one hand, Uber controls their work in great detail through the app. On the other hand, the drivers have no obligation to work when they choose not to. The drivers provide the car, which is needed for the job, yet Uber provides the app, without which the drivers cannot find riders. These complexities are far from being completely resolved.