A driver making a delivery for your company is involved in a car accident that seriously injures someone, resulting in a lawsuit against your company.
Will your company have to pay?
This is a complicated subject with numerous exceptions. Usually, while an employer can be held liable for acts committed by an employee that fall within the scope of employment, a business typically is not responsible for the conduct of an independent contractor.
Smart Business spoke with Elizabeth Wolicki, an associate at Novack and Macey LLP, about proper classification of independent contractors.
How can businesses protect themselves and limit their liability?
First, it is important to be aware that merely labeling a relationship with somebody who is providing services for your company as that of an independent contractor is not enough.
Whether a worker is an independent contractor or employee depends on how the relationship between the parties actually works in practice.
To determine the true classification of a worker for liability purposes, courts consider a variety of factors.
These include an employer’s right to control the manner in which the work is performed; the nature of the work performed in relation to the general business of the employer; the manner of hiring; the right to discharge the worker; the character of the supervision of work done; the kind of occupation; the nature of the skill required, including whether the necessary skills are obtained in the workplace; the responsibility for the cost of operation, such as equipment, supplies, fees, licenses; whether the worker receives paychecks or benefits from the employer; whether taxes are deducted from the payment received from the employer; and whether the worker wears a uniform with the company name and logo.
Of these factors, the most important is whether the business has the right to control the manner of the work, regardless of whether the business actually exercises that right.
How would the courts view the worker in the example?
In the example of the delivery truck driver, a court might look at who owns the truck; who is responsible for costs associated with the truck, such as insurance and maintenance; if the company requires its logo to be on the truck; whether the driver is wearing an outfit with the company logo; whether the driver is free to contract with other companies; and whether the driver sets his own schedule.
The court may also examine written documentation between the truck driver and the company, such as a contract or a drivers’ manual, to see whether these documents allow for control by the company over the driver.
How can businesses ensure workers are classified as independent contractors?
If a business wishes to have true independent contractors and limit its potential liability for their actions, then it needs to take steps to ensure that legally the worker will be considered an independent contractor.
For example, the business can allow workers to establish their own schedules, such as hours worked and whether or not to accept certain assignments; require workers to provide their own equipment without too many specifications as to the type of equipment; require that the worker cover any costs associated with the maintenance of that equipment; have third parties pay the worker directly; and not outfit the worker in company attire.
While it is not a dispositive factor, the employer should make sure that the worker’s contract refers to the worker as an independent contractor.
What compromises will businesses need to make to utilize independent contractors?
A downside to having independent contractors and not employees is that, for a worker to be considered an independent contractor, the business must give up a large amount of control over the worker. You need to compare the risks of having workers doing things for your business that you do not control to the risks of having employees under your control subject you to liability for their actions. ●
Insights Legal Affairs is brought to you by Novack and Macey LLP
