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Online Seminar

INDEPENDENT CONTRACTOR AGREEMENT & EMPLOYEE MISCLASSIFICATIONS

March 28, 2011

A recent California Court of Appeals case (Narayana v. EGL, Inc., 9th Cir., 2010) delivered a very strong message to California employers that courts in California do not consider independent contractor agreements relevant to the question of whether a worker is an employee for purposes of the California State Labor Code.

In Narayana v. EGL, Inc., EGL hired three workers to provide pick-up and delivery services for the company’s operations in California. The workers signed independent contractor agreements with EGL that acknowledged that they were not EGL employees and had vendor relationships between them and EGL.

Despite the independent contractor agreements, the workers sued EGL in a California court alleging that the company had misclassified them and other drivers as independent contractors and failed to afford them employee protections contained in the California labor code that included overtime compensation, off-duty meal periods, accurate wage statements and payroll records and reimbursed business expenses. In addition, the workers alleged that EGL was liable for unlawful wage deductions, waiting time periods and violations of the state’s unfair competition law.

The suit was originally heard before a federal district court that did rule that, based on the declarations in the agreements, the workers were independent contractors. At that time, the case was dismissed. However, the case was appealed to the Ninth circuit court which then reversed the district court’s decision.

The Ninth court ruled that the existence of agreements that label workers as independent contractors is not decisive under California’s multi-factor test for employment. Furthermore, the Court found several indicators of an employment relationship, including the following:

  1. The agreement included automatic renewal clauses and could be terminated by either party with a 30-day notice or breach of the contract.

 

  1. The delivery services which the workers provided were an essential part of EGL’s regular business.
  2. The company instructed the workers on how to conduct themselves when receiving assignments and packages, responding to customer complaints, and handling damaged freight.
  3. The workers used employer-provided forms, received inter-company memos and attended meetings on company policies.
  4. The workers had to submit advance notice of vacation days.
  5. The company required the workers to wear uniforms with the company’s name and the workers were provided regular company ID cards.
  6. The workers drove exclusively for the employer.
  7. The jobs provided to the workers by the company didn’t require any high level skill, any special license, or any skills beyond the ability to drive.

In considering this case, California employers that hire independent contractors should carefully review their contractor relationships. Among things to consider, a California employer should review the extent to which they direct and control the work of contractors; the degree of permanence of the relationship; which party provides office space, business cards, marketing materials, tools, and equipment; whether training is provided by the business; whether performance reviews and discipline are issued; whether the contractor is engaged in a distinct occupation or business; the amount of skill required for the work; and how the worker is paid such as by the job or hourly.

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