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Cases question independent contractor’s status

The multitude of arrangements that characterize the modern workplace raises a number of questions concerning the status of workers. A recurring issue is whether they are employees or independent contractors. The answer may be significant for a number of purposes, ranging from obligations for unemployment benefits and workers’ compensation to imposition of vicarious liability.

A number of tests has evolved over the years for determining the status of a worker. The Internal Revenue Service has a 20-part test, Rev Policy 87-41, which resembles the Minnesota Multi-Phasic Inventory (MMPI), and is emulated in truncated form by a number of other agencies and bodies.

The characterization of workers was addressed in a pair of recent rulings from the Minnesota Court of Appeals, which shed light on the process by which this important determination is customarily made.

Dirty dealing

In one decision, individuals who perform janitorial services under an employment agreement labeling them as independent contractors were entitled to pursue claims for unpaid wages and unjust enrichment, notwithstanding designation in the contractual documentation.

In Vielbig v. USA Janitorial, Inc., 2001 WL 50890 (Minn. Ct. App. Jan. 23, 2001) (unpublished), a lawsuit was brought against a company that solicits janitorial business from third parties, then hires others to perform the services pursuant to a signed agreement. Those who perform the work are labeled as “independent contractors.” Under the arrangement, the workers pay an “up-front” fee to the company, which retains a percentage of the fee and then deducts management fees before paying the service workers. The janitorial workers accused the company of dirty dealing for failing to pay wages and wrongfully deducting expenses.

They claimed they were employees, not independent contractors, and were entitled to payment of the entire wages earned, without deduction of expenses, under the Minnesota wage payment statute, Minn. Stat. sec. 181.79. Alternatively, they sought to set aside the contract as one of adhesion and recover for unjust enrichment. The Hennepin County District Court dismissed the lawsuit for failure to state a claim.

But the janitors made a clean sweep of both issues before the Court of Appeals. Because the wage payment statute applies only to employees, not independent contractors, the court first had to decide the proper classification of the employees. It noted that the issue is a mixed question of law and fact and that the “label” given to the relationship by the parties is “not determinative.” The court cited five well-established factors used under Minnesota law to differentiate employees from independent contractors:

• the right to control the means and manner of performance,

• the mode of payment,

• the furnishing of materials or tools,

• the control of the work premises, and

• the right of the employer to discharge.

The right of “control” is the single most important consideration.

Looking solely to the allegations of the complaint, which must be accepted as true on a dismissal motion, the court pointed out that the defendant company “regularly inspected” the premises, monitored the work in detail, and reserved the right to terminate workers, which collectively established a “de facto” employment relationship. Because the allegations can establish liability, the claim was improperly dismissed for failure to state a claim.

The unjust enrichment claim also was actionable. While an “expressed contract” precludes an unjust enrichment claim, the janitorial workers had placed the validity of the contract in question by asserting it was a conflict premised on substantial “disparity and bargaining power.”

Therefore, they had sufficiently planted a cause of action that should survive dismissal. The court observed that the contracting company was “not without remedy,” reserving the opportunity to move for summary judgment after discovery, a directed verdict after trial, post-trial relief, or even appeal.

Cab contractor

Arrangements between owners or licensees of taxicabs and the drivers are usually set up as independent contractor relationships, largely to insulate the owners from liability in light of the frequency of vehicular accidents.

Dual barriers precluded suit against both the taxi company and the taxi owner in Bagot v. Airport & Airline Taxi Cab Corp., 2001 WL 69489 (Minn. Ct. App. Jan. 30, 2001) (unpublished).

The injured passenger contended that the owner of the taxicab and the decedent driver were employees of the company that dispatched the cab. But the Hennepin County District Court determined that the taxi owner was an independent contractor of the cab company, and the driver was an independent contractor of the owner, which exonerated the company and the owner from liability.

Citing the five familiar factors for determination of independent contractor status, with emphasis on the right to “control the means and manner of performance,” the Court of Appeals concurred with the Hennepin County District Court. The owner of the vehicle paid a weekly amount for dispatch services and insurance under the taxicab company’s general insurance policy, while the owner owned the vehicle and paid for his own gas, worked when he wanted, was “under no supervision or direction” by the cab company, which exercised no “control” over the driver who collected his own fares and was responsible for payment for all of his own taxes.

The relationship between the driver and the owner was similar, which led the court to conclude that both the owner of the vehicle and the driver were independent contractors. The mere “contract for dispatch service” did not change the relationship since both the owner and vehicle driver were not subject to control by the dispatch service and “worked when they chose to work.”

The court also rejected a number of other alternative theories of liability that form exceptions to the rule that employers are not liable for the negligence of independent contractors, including a nondeligable duty of care, the existence of joint enterprise, and agency theories.

The dissenting opinion, however, would apply sec. 429 of the Restatement (Second) of Torts, which imposes liability upon a party who employs an independent contractor if there is a “reasonable belief that the services are being rendered” by the employer or his employees. The dissent found a “reasonable belief” on the part of the public that the taxi drivers were employed by the cab company, especially because the taxi contained the company’s name and colors. This created a “public perception that it was an employer and … that the driver of the cab was an employee” of the cab company. Because of this “public perception,” the dissent would not allow cab companies, vehicle owners, and drivers to “secretly arrange for independent contractor status” to undermine the principle of respondeat superior.

As these two cases reflect, the degree of control exercised by a business over persons performing services is the single most important criterion for determining independent contractor status. But other considerations also come into play in reaching that conclusion.

Marshall H. Tanick is an attorney with th
e Twin Cities law firm of Mansfield, Tanick & Cohen, P.A. He is certified as a civil trial specialist by the Minnesota State Bar Association and represents employers and employees in a variety of workplace-related matters.

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