You may have heard the recent headlines, the topic usually gets a bit of attention; the U.S. 4th Circuit Court of Appeals issued an opinion siding with a group of Exotic Dancers in a dispute with their employers. The opinion itself presents the facts in a fairly mundane way, but it contains a discussion about the difference between the employee and independent contractor that is worth paying attention to.
We have represented a number of employers who wanted to set up an “independent contractor” relationship between themselves and another. After the economy slumped towards the end of the last decade, more and more people in the region went into business for themselves. Many of them realized that they wanted a business relationship with an independent contractor in order to help their business grow. Many clients were successful in finding smaller companies that would take their overflow work, while others found the transition hard to handle. Most importantly, they overlooked the phrase “independent” in “independent contractor.”
An independent contractor must operate in a way very different from an employee. The Courts use a test to figure this out. The factors in this “test” are “(1) the degree of control that the putative employer has over the manner in which the work is performed; (2) the worker’s opportunities for profit or loss dependent on his managerial skill; (3) the worker’s investment in equipment or material, or his employment of other workers; (4) the degree of skill required for the work; (5) the permanence of the working relationship; and (6) the degree to which the services rendered are an integral part of the putative employer’s business.”
An important sentence in the 4th Circuit’s opinion states: “The more the worker’s earnings depend on his own managerial capacity rather than the company’s, and the more he is personally invested in the capital and labor of the enterprise, the less the worker is “economically dependent on the business” and the more he is “in business for himself” and hence an independent contractor.” These are the sorts of things a business owner has to keep in mind when deciding to go with “independent contractors,” and it is advisable to speak with an attorney about how to best set up a truly independent relationship. Failure to do so could mean liability for unpaid wages, workers’ compensation benefits, and unemployment insurance premiums.
If you are dealing with employment or wage issues in Virginia or Maryland, we can help. Our firm has office locations in Fairfax, Manassas, and Richmond. B