Tuesday, February 7, 2017

Independent Contractor or Employee?

The New York State Court of Appeals, New York's highest court, recently issued an interesting decision that provides a simple explanation of the difference between an employee and an independent contractor.  In sum, the Court found that the question was how much control the employer has over the individual both as to the methods by which they do their work and the form and content of their work results.

In the case, In Re Empire State Towing Association (Octoboer 2010), the Court considered an attorney who was hired by an organization as its Executive Director.  The facts included:
  • The Executive Director did adminstrative duties such a staffing a phone, mailings, and coordinated publication of the group's journal;
  • He attended board meetings, maintained a bank account, and had check writing authority up to $500;
  • The Executive Director performed all these services from his own law office, was free to set his own schedule, and was not working exclusively for the association; and
  • Several years ago a part-time assistant was hired to help the Executive Director who was considered an employee of the association.
The Court applied the "control" test to decide whether the Executive Director was an employee or an independent contractor.  This test looks at whether the employer (here the association) exercises control over the results produced or the means used to achieve the results.

The Court concluded that the few things the association did that could be considered "control" over the Executive Director were incidental and not indicative of employee status:
"Although the record before us extensively details O'Connell's duties, it lacks substantial evidence of any control exercised by the association over O'Connell.  The requirement that the association's treasurer had to approve and co-sign on checks for over $500 does not support a finding that O'Connell was an employee.   The check approval authority was a form of incidental control over results that is 'a necessarily wise business decision' (Matter of Ted Is Back Corp., 64 N.Y.2d at 725).   Moreover, the fact that O'Connell had to submit periodic reports and attend meetings 'is a condition just as readily required of an independent contractor as of an employee and not conclusive as to either' (Matter of Hertz Corp., 2 NY3d at 735)."
This case was in the context of unemployment insurance compensation.  While the tests are similar depending on the context (unemployment, workers compensation, pension and/or health benefits, employment discrimination), they are different and always fact specific.

Nathaniel K. Charny

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