Independent Contractor VS Employee: How much control is too much control?

A common and repeated inquiry from our clients involves whether, when and how to classify workers as independent contractors vs employees. The question is especially interesting to companies in many industries that utilize a network of sales professionals. Many of these businesses are highly regulated adding pressure on the company to ensure that their sales staffs transact business sales lawfully. A critical inquiry in these situations involves analyzing the degree of control the company exercises over its independent contractor personnel. Another important factor arises when the company sets minimum sales goals or quotas. The critical classification question is always “how much control is too much control to maintain independent contractor status?”

A recent case that addressed these questions in the insurance industry may provide guidance for other businesses that wish to use independent contractor sales force. In Beaumont-Jacques v. Farmers Group, Inc., 2013 Cal. App. LEXIS 546 (Cal. App. 2d Dist. June 12, 2013), a District Manager claimed she was misclassified as an independent contractor because Farmers controlled the “manner and means” by which she achieved required sales results. The court disagreed, finding that this manager was properly classified as an independent contractor. In its decision, the court referred to a California Supreme Court case, McDonald v. Shell Oil Co. (1955) 44 Cal.2d 785, which held that “the owner may retain a broad general power of supervision and control as to the results of the work so as to insure satisfactory performance of the independent contractor . . .” Specifically, a company can retain the right to inspect, the right to make suggestions or recommendations as to details of the work, and the right to prescribe alterations or deviations in the work and still maintain an independent contractor classification.

Some reasons the Court relied on in finding the manager as an independent contractor, include: she exercised discretion by training and motivating other agents; she set her own daily working hours and vacation days; she usually set the time for her arrival and departure at her office; she set lunch and break times; she hired and supervised her office staff; she paid her own expenses, (e.g. marketing, office rent, office supplies and telephone service) and she deducted those expenses on her personal tax returns by filing a Schedule C; she listed herself as self-employed on her tax returns; she had signed an agreement with Farmers that established an independent contractor relationship and expressed that she was not an employee. The court rejected the manager’s argument that the “at-will” nature of her employment supported for her claim of employee status because she voluntarily resigned (therefore Farmers had not asserted or relied on the at-will clause); and, the right to terminate the agreement was given to both the manager and the company. Of interest, the court noted that even though Farmers had input about the quality and direction of the manager’s efforts, Farmers did not have control over the details of how the manager performed those efforts. While classification cases are always dependent on the specific facts of each case, the court found a sufficient level of freedom and autonomy in the manager’s conduct of the daily details of her activity such that she was properly classified by the company as an independent contractor, not an employee.

Proper classification of independent contractors is important for any business because misclassification can result in claims for unpaid overtime, wrongful termination, unemployment benefits, and subject a hiring company to other state and federal employment law claims. Misclassified plaintiffs will frequently claim various benefits and protections made available to employees under the California Labor Code and Federal labor statutes. The potential penalties for misclassification can be costly and severe. Hiring companies must take special care to avoid the assertion of too great a level of control over the day-to-day tasks and performance of their independent contractors.

Your Social Media posts may be used against you.

A recent collection of new cases makes clear that Court’s are becoming more and more inclined and willing to allow discovery of and admission of evidence of a parties’ social media posts, pictures and content. When you post on-line, are you considering the fact that the posts may be shown later to a Court or Jury??

In a sexual harassment case, [E.E.O.C. v. Original Honeybaked Ham Co. of Georgia, Inc., 2012 WL 5430974 (D. Colo. Nov. 7, 2012)] the defendant moved the court to compel production of information contained on the social media accounts of many female class members. To show that the information sought was likely to be relevant, the defendants pointed to several publicly-available Facebook posts. For example, one plaintiff’s Facebook posts contained information about her emotional state, her financial expectations in this lawsuit, her post-termination employment, and her outlook on life post-termination. Viewing each of these categories as “potentially relevant” to the case, the court stated that “if the information was contained on pages filed in the ‘Everything About Me’ folder, it would need to be produced.” Addressing whether the result should be different because the information is on Facebook, the court reasoned that willingly choosing to store and share information on Facebook presents “an even stronger case for production, at least as it concerns any privacy objection.”

In another case a court Found that Facebook pictures of plaintiff skiing were relevant to her claim of damages and allowed further discovery. In Richards v. Hertz Corp., 2012 WL 5503841 (N.Y. App. Div. 2d Dept. Nov. 14, 2012), a personal injury suit arising out of an automobile accident, the defendant sought all “status reports, e-mails, photographs, and videos” posted on the private portions of the plaintiff’s Facebook page. The defendants alleged that production was warranted because one of the plaintiffs posted to Facebook pictures of herself skiing, which were directly relevant to the plaintiff’s testimony that the accident impaired her ability to play sports and “caused her to suffer pain that was exacerbated in cold weather.” The court found that the defendants met their burden, showing that the public images and other portions of the plaintiff’s Facebook profile were “reasonably calculated to lead to the discovery of information bearing on” the plaintiff’s claim.

And in Pennsylvania an Employer was found not to have violated certain Federal law when it took control of a former employee’s LinkedIn account under company policy. In Eagle v. Moran et al., Civil Action No. 11-4303 (E.D.Pa. Oct. 4, 2012), the plaintiff attempted to establish violations of the Federal Computer Fraud and Abuse Act (“CFAA”) and the Federal Lanham Act against her employer because after the plaintiff was involuntarily terminated from her position as CEO with her former employer, the employer used her password to change her LinkedIn profile to that of the new CEO as well as the password associated with the account. When individuals searched for the plaintiff, it resulted in the display of the incoming CEO’s name, photograph, and new position. It is important to note that the employer followed internal policies of asserting ownership over former employees’ accounts, and, while the employer did use information and incoming traffic from former employee accounts, it took steps to avoid identity theft. Additionally, when the plaintiff set up her LinkedIn account, she gave another employee her password according to internal policies. Under the CFAA, the court ruled that the plaintiff failed to establish a claim as a matter of law because loss of business opportunities is not enough to meet the required showing of actual loss (usually proven by showing damage to a computer). Under the Lanham Act, the plaintiff is required to show that the defendant created a “likelihood of confusion” from using a “mark” owned by the plaintiff. The court disposed of the claim on the “likelihood of confusion” prong because any confusion that occurred was not about the plaintiff’s “’affiliation, connection or association”’ with the new CEO or employer—at most it created a mere diversion. The Federal Law claims were dismissed, though the court did not rule on several state causes of action set for trial.

Employers and employee need to carefully consider their use and relationship to both social media content and social media accounts. Have a policy and clear understanding about both and get the advice of your legal counsel to help navigate this rapidly developing area of law.