Properly Classify Workers to Avoid Litigation – California Right to Control Test

Properly Classify Workers to Avoid Litigation – California Right to Control Test
Contract Drafting & Negotiation

As reviewed in earlier blog posts here and here, employment litigation is a hot topic in the business community. To properly classify workers, business owners need to take into account the various tests created by the Internal Revenue Service, the California Employment Development Department, and California state and federal courts. Click here for a review of the IRS 20 Factor Test. Click here for a review of the IRS Control Test.

In general, the most significant factor used to determine whether a worker is an employee or an independent contractor is the commissioning party’s right, regardless of whether it is exercised, to direct and control the details of the work. However, this doesn’t mean that the commissioning party needs to surrender the right to exercise general supervisory control over the worker, including: the right to inspect, the right to stop the work, the right to make suggestions or recommendations as to details of the work, and the right to prescribe alterations or deviations in the work.

There are a number of secondary factors used in determining a worker’s status including overlaps quite a bit with the IRS 20 Factor Test. The right-to-control test is a “totality of the circumstances” approach and requires the balancing of various factors with no one factor being determinative, but with emphasis on the right to control the worker.

In situations where there is doubt regarding the issue of direction and control, the most common reference point used by the courts are the factors set out in the Restatement (Second) of Agency (1958). Section 220 of the Restatement provides that the following 10 factors, among others, should be considered to determine whether a service provider is an employee or an independent contractor:

  1. The extent of control that the employer or principal, by the agreement, may exercise over the details of the work;
  2. Whether or not the worker is engaged in a distinct occupation or business;
  3. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of an employer or by a specialist without supervision;
  4. The skill required in the particular occupation;
  5. Whether the alleged employer or the worker supplies the instrumentalities, tools, and place of work for the person doing the work;
  6. The length of time for which the worker is retained;
  7. The method of payment, whether by the time or by the job;
  8. Whether the work is a part of the regular business of the alleged employer;
  9. Whether the parties believe they are creating the relation of employer and employee (the Restatement uses the terms, “master” and “servant”); and
  10. Whether the alleged employer is or is not in business.