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Courts differ in independent contractor cases

Businesses in Minnesota and elsewhere are seemingly using more independent contractors these days.

The increase in independent contractors is attributable to several factors. One is the desire of employers to limit their prospective liability under discrimination laws and other statutes that grant rights to an employee but not an independent contractor. Another is the aversion to pay higher insurance premiums for workers’ compensation policies or more taxes, such as those that help fund the unemployment compensation pool.

An employer achieved the former goal in a recent ruling late last year by the 8th Circuit Court of Appeals. But another employer failed in its effort to fend off unemployment compensation benefits in a case decided by the Minnesota Court of Appeals.

Doctor’s decision

An emergency room doctor was deemed an independent contractor, not an employee, of the medical facility where she worked, which barred her from pursuing a discrimination claim in In Glascock v. Linn County Emergency Medicine. The physician sued under federal and state discrimination laws after she was fired, claiming that the termination was due to her sex, pregnancy and her Iranian national origin. The trial court dismissed the action on grounds that she was an independent contractor and, thus, not covered by those statutes.

The 8th Circuit, in a decision written by Judge Diana Murphy of Minnesota affirmed the lower court ruling, deciding the case in a rather short period barely two weeks after hearing oral argument. Although the physician signed an “Independent Contractor” services agreement, the case turned “primarily” on whether the facility exercised “control [over] the manner and means” of the physician’s work. To answer this question invokes a dozen different factors under Nationwide Mut. Ins. Co. v. Darden, coupled with the terms of the agreement and the “economic realities” of the relationship between the parties. The evidence regarding the key issue of control was “inconclusive,” based on the scheduling and periodic performance review conducted by management balanced against the doctor’s discretion “which patients she would see.”

While some of the critical factors favored employment status, they were “fewer in number and less in weight” than the ones establishing independent contractor status. The considerations suggesting an employment relationship included the expectation by the physician of “a long term relationship,” although her contract only specified a one-year duration and payment of hourly wages.

But the factors were outweighed by others, which “pointed toward independent contractor status.” They included the lack of benefits, payment of her own self-employment taxes, and payment of her own licensing fees, among other matters.

Therefore, summary judgment was upheld, even though the “control” issue was murky, and the doctor was deemed an independent contractor and barred from pursuing her federal and state law discrimination claims.

Transport tussle

A tussle over unemployment compensation benefits between a pair of drivers transporting medical patients and the company for which they worked ended favorably for the drivers in Baindurashvili v. Helpful Hands Transportation, Inc. An Unemployment Law Judge (ULJ) with the Department of Employment and Economic Development, which oversees unemployment compensation proceedings in Minnesota, ruled that the claimants were entitled to unemployment compensation benefits after they were let go because they were employees and not independent contractors.

The appellate court affirmed, holding that their employer controlled the means and matter of performance and had the ability to fire the truckers without incurring liability. These two significant factors indicated that employer-employee relationship under Minnesota law.

“The company instructed [the drivers] where and when to pick up and drop off patients,” which evinced a degree of control central to an employer-employee relationship, which the drivers had “control over the routes they took to transport patients.” The company “exercised significant control” in assignments, coupled with “long-term” relationships with the drivers of six years and three years, respectively.

Some factors favored independent contractor status. Pay was done on a per-patient basis without regard to distances driven and without submission of bills or invoices. The company provided most of the “tools necessary to perform the service,” including a vehicle, safety equipment and insurance.

But these considerations were outweighed by the way the transport company “controlled the means and manner of performance … [and] ability to discharge the drivers without incurring liability.” These two factors reflected that “an employer-employee relationship existed,” warranting affirmance of the ULJ decision allowing unemployment benefits.

There are many valid reasons that businesses use independent contractors, usually predicated upon economic considerations. These cases show the different results that can ensue when suits are brought over these issues.

Originally published in the February 11, 2013 edition of Minnesota Lawyer.