Independent Contractor in the United States

In Plain-English Law

Independent Contractor as defined by Nolo’s Encyclopedia of Everyday Law (p. 437-455): A self-employed person, as defined by the IRS. Unlike employees, independent contractors retain control over how they do their work. The person or company paying the independent contractor controls only the outcome the final product or service.

For a meaning of it, read Independent Contractor in the Legal Dictionary here.

Practical Information

A person who is hired to perform services and is responsible for the end results of his or her labor. The hirer has no control over the method of performance or details of the independent contractor’s work. The general rule is that a hirer is not liable for a tort (in U.S. law) committed by an independent contractor. To avoid any later controversy over the status of an independent contractor (e.g., that he or she is not an employee), some organizations request that such persons sign an agreement clarifying their status and the nature of their services. (Revised by Ann De Vries, 1982)

Independent Contractor meaning

See: employee vs. independent contractor

A person or business who serves another but on their own account, thus generally being paid either a flat rate or commission. The independent contractor is not subject to the control of she who hires them and thus the person who engages the contractor is not liable for the acts or ommissions of the contractor.

The follow is by Keri S. Bruce, Mark S. Goldstein and Sarah T. Hansel (9 April 2015):

“Broadly speaking, a worker may be classified as either an “employee” (an individual to whom statutory wage payment and other legal protections apply) or an independent contractor (to whom such protections generally do not apply). Although the vast majority of the U.S. workforce falls into the former category, independent contractors serve an important function in the economy and offer businesses many upsides over employees. To take advantage of these benefits without risking the downsides, including “misclassification” litigation and other pitfalls, it is important for companies to understand the differences between employees and independent contractors from a legal standpoint.

Typically, a company should engage independent contractors for a discrete period of time to perform a task or series of tasks outside the scope of expertise of the regular, employee-workforce. Unlike employees, contractors should not complete employment applications or W-4 forms, and they should not receive the company’s employee handbook. In addition, contractors should not be shackled by the same restraints that encumber employees: companies should ensure that their independent contractors remain free from direct supervision and control, may negotiate their own rates, retain latitude to perform their assigned task(s) in any manner and on any schedule they choose (so long as their work product is delivered by company-required deadlines), and are permitted to perform work for multiple businesses at any given time. Where applicable, independent contractors also should provide their own tools, transportation, and the like….”

Forum of the engagement

They continue:

“In recent years, a smattering of disparate (and in some respects, inconsistent) tests have emerged – among federal and state courts, as well as various regulatory and administrative agencies (e.g., the U.S. Department of Labor and the IRS). The IRS, for example, uses a 20-factor test to evaluate proper independent contractor classification. On the other hand, many state agencies, in determining a contractor’s employment status for purposes of workers’ compensation and unemployment insurance eligibility, utilize three- and five-pronged approaches.

The tests coming out of the court system are no less varied. To illustrate, whereas all courts evaluating an independent contractor’s claim for wages under the federal Fair Labor Standards Act (FLSA) apply what is dubbed the “economic reality” test, the courts do not define or apply that test uniformly. For example, federal courts in the Third Circuit examine six factors:

• the degree of the alleged employer’s right to control the manner in which the work is to be performed;
• the alleged employee’s opportunity for profit or loss depending upon his or her managerial skill;
• the alleged employee’s investment in equipment or materials required to perform assigned tasks, or the employment of helpers to perform those tasks;
• whether the services rendered require special skills;
• the degree of permanence of the working relationship; and
• whether the services rendered are an integral part of the alleged employer’s business.

By contrast, courts in other Circuits, including the Second Circuit, examine only five factors.

State courts assessing independent contractors’ entitlement to protection under state wage and hour statutes also take varied approaches. Of significant note is the New Jersey Supreme Court’s recent adoption of the so-called “ABC” test, which presumes that a worker is an employee, and not an independent contractor, unless the engaging entity can demonstrate all of the following:

• that the worker is free from the entity’s control or direction over the performance of the service, both by contract and in fact,
• that the service provided is outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the entity; and
• that the worker in question is customarily engaged in an independently established trade, occupation, profession or business.

The court’s ruling means that a worker in New Jersey may be properly classified as an independent contractor under federal law, but improperly classified under state law.

Similar contradictions exist at the state and federal agency level as well. (…)

Companies that engage contractors face the peril of independent contractor-initiated litigation in which an independent contractor claims “misclassification” and seeks the greater wage and other benefits afforded to regular employees. In addition, there is the potential for costly audits by pension authorities and state and federal tax and fair employment agencies. In some cases, if one agency makes a misclassification determination, other agencies will jump on board to commence their own investigations, which can also result in independent contractors initiating their own private civil actions.”

Cause of Action Against Employer for Negligence of Independent Contractor Engaged in “Inherently Dangerous” Activity: an Overview

This section examines this type of action. This subject identifies the various elements of the Cause of Action Against Employer for Negligence of Independent Contractor Engaged in “Inherently Dangerous” Activity, offering a practical approach to the litigation issues of this cause of action. See also the entry about legal risks.