It is crucially important for business owners to properly distinguish between independent contractors and employees. This matters immensely since “employees” are entitled to a whole host of rights under federal and state statutes, which are not applicable to “independent contractors.” Unfortunately it is often difficult to determine whether a worker should be classified as an “employee” or an “independent contractor.”
One might think that it should be as easy as drafting a contract to make clear that you are not hiring an employee; however, it is not that simple. The courts generally hold that it doesn’t matter whether you have labeled a worker as an “independent contractor” or not. What matters, for the purposes of employment law, is usually the degree of control you have exercised in managing the worker’s performance. The more you manage his or her work, the more likely a court will be to say that the worker is actually an employee. But, other factors matter as well—like whether the worker owns his or her own equipment, or whether the worker performs services for you at your place of business. Suffice it to say that this area of the law can be pretty confusing for small business owners.
The good news is that the NFIB Legal Center has been working to encourage courts to adopt more workable rules, so that businesses can more easily determine whether it is necessary to treat a worker as an employee or a contractor. For example, we recently filed a brief urging the Supreme Court of New Jersey to make clear that judges cannot convert a service contract between independent businesses into an employment contract. As we argued to the court, such an approach would hurt the small business community because it would discourage established businesses from entering into contracts with smaller companies.
In addition to fighting for common-sense rules in the courts, NFIB Legal Center has developed a helpful guide for businesses seeking to use independent contractors. Check out our free Guide to Independent Contractors. This is one of a series of useful guides that we have developed to help you understand employment law. See the whole legal guide series here. Its free!