INDEPENDENT CONTRACTOR CASE STUDIES FROM
TEXAS WORKFORCE COMMISSION APPEALS
TWC Case 1 – Facts:
The employer failed to report wages for a worker who had been hired to repair and otherwise maintain appliances sold by the employer’s company. The claimant’s initial claim was disallowed due to lack of wage credits, and the claimant successfully appealed to the Appeal Tribunal, which ruled that the claimant was an employee whose wages should have been reported to TWC. At the hearing, the employer testified that it based its belief that the claimant was an independent contractor on the facts that the claimant furnished some of the tools for the work, used his own truck, and paid for his gas. However, the evidence also showed that the claimant worked only on jobs secured by the employer, charged fees set by the employer, and that customer payments went not to the claimant, but to the employer. Also, the employer essentially paid for the claimant’s work expenses. After losing at the Appeal Tribunal level, the employer appealed to the Commission, but lost again, all three Commissioners voting that the claimant was an employee, rather than an independent contractor.
Analysis: The evidence as a whole showed that the employer had sufficient control over the claimant to be considered his employer. In any case involving the issue of whether a given worker is an independent contractor or an employee, TWC looks for evidence that the worker is in effect an independent business entity in a position to make a profit or loss based upon how he manages his own enterprise. Several factors show that this claimant was not in such a position.
- The employer either determined or was responsible for almost every factor in the profit or loss equation. The employer determined the claimant’s pay rate and paid him on an hourly basis. A true independent contractor would negotiate his own compensation with his own customers and be paid on a per-job basis.
- The claimant worked on jobs secured by the employer. An independent contractor would be responsible for securing his own customers.
- The claimant supplied some of his tools, used his own truck, and paid for his gas, but the employer paid him an extra hourly amount to compensate for those expenses. A true independent contractor would pay his own costs of doing business. The employer supplied some tools and apparently all of the major equipment needed for the work, and it did not charge the claimant for the use of those items.
- In addition, the materials used for the jobs on which the claimant worked were supplied by the employer. An independent contractor would be responsible for supplying all of the tools, equipment, materials, and supplies for the job.
- The employer determined the fees paid by the customers. A true independent contractor would set the price to be charged to the customers.
- The customers paid the employer for the work done. If the claimant had been an independent contractor, the customers would have paid him.
- If additional help was needed on a particular job, the employer hired and paid additional laborers. An independent contractor would be the one to decide whether additional help would be hired and how much to pay them.
- The claimant performed his services under the employer’s name. A true independent contractor would perform the work under his own business name.
- The services performed by the claimant were directly integrated into the employer’s business. Anytime a worker’s services are so closely connected to those offered by a company, the company is presumed to exercise enough direction and control over his work to ensure the quality thereof.
The only aspect of the work relationship over which the claimant had a significant amount of control was that of his hours. The claimant usually determined the time of his work by agreement with the employer’s customers. However, that small factor is inconsequential when taken together with the other factors discussed above.
This claimant was not in business for himself. For the reasons noted above, the claimant was an employee, and his wages should have been reported as such to TWC.
TWC Case 2 – Facts:
The employer was an accounting firm. The claimant was hired to perform contract bookkeeping services for the employer’s clients who needed such services. He worked only on jobs assigned to him by the employer and was paid a commission for the work; the commission was based on fees paid by the clients to the employer, and the employer determined the level of fees. The claimant was paid on a weekly basis. He used the employer’s office space, equipment, and supplies. The employer reviewed the claimant’s work and returned faulty work to the claimant for corrections before delivering the work to clients.
The claimant’s initial claim had been disallowed due to insufficient wage credits; the claimant appealed, and the Appeal Tribunal awarded wage credits, finding that the claimant had been an employee of the employer. The employer appealed, and the Commission unanimously ruled that the Appeal Tribunal decision was correct.
Analysis: This claimant was not an independent contractor. Several factors lead to that conclusion:
- The claimant’s work was directly integrated in the primary service of the employer. A business hires an independent contractor in order to get expertise it is not in a position to supply for itself, and this business was definitely in a position to supply bookkeeping services, since it was an accounting firm.
- The claimant did not secure his own jobs, as a true independent contractor would, but rather worked on assignments given to him directly by the employer.
- The claimant had no control over the factors of the profit and loss equation, since he had no substantial investment in an independent business enterprise, but rather used the employer’s facilities, supplies, and equipment. In addition, the claimant had no role in setting the price for his work or the level of his commission pay, as a true independent contractor would.
- Finally, the employer checked the claimant’s work for accuracy and returned mistakes to the claimant for corrections. In a true independent contractor situation, the “employer” (who would thus be the independent contractor’s customer) would be in no position to make such judgments about the accuracy of details of the contractor’s work. The fact that the employer was so concerned about the accuracy of the claimant’s work before releasing it to the clients strongly indicates that the employer felt it had the primary responsibility for the work in question. A true independent contractor would not only be delivering his work directly to his clients, but would also have the primary responsibility and liability for the work.
Conclusion: this claimant was an employee – the wages should have been reported.
TWC Case 3 – Facts:
The claimant was paid on an hourly basis to serve as a contract office manager; her main duties were to train the employer’s employees how to do their jobs, monitor the quality of their work, and to perform clerical duties in the office. The claimant had signed a written agreement specifying that she was an independent contractor. The claimant’s initial claim had been disallowed for lack of wage credits, but the Appeal Tribunal ruled that the claimant was an employee. The Commission upheld the hearing officer’s ruling in a unanimous decision.
Analysis: An hourly pay rate is strongly indicative of an employment relationship, whereas most independent contractors are paid by the job or project. In this case, the claimant had no opportunity for a profit or loss, since all materials and facilities were supplied by the employer. Since the claimant’s job was to train the employer’s employees and monitor the quality of their work, she essentially functioned as their supervisor – it is difficult to imagine a job function that would be more directly integrated into the employer’s business. In addition, the fact that the claimant also performed a number of routine clerical tasks associated with the employer’s business raises a presumption that she was an employee. The fact that the claimant had agreed in writing that she was an independent contractor is irrelevant, since the facts show that she was an employee. The claimant’s wages should have been reported as wages from employment.
TWC Case 4 – Facts:
The employer’s company was a car rental agency in a major city, with locations downtown and at area airports. The claimant performed services as the driver of a shuttle van for the employer under a written contract specifying that he was an independent contractor. He was paid a set rate per mile plus an hourly rate for waiting time; paydays were at regular intervals. There was no evidence that he had negotiated the pay rate. He worked only on assignments given to him by the employer and did all work in the employer’s name. He had to be on 24-hour call. He was told by supervisors at various levels that he would be fired if he refused to make runs as directed by the employer. The claimant worked for the employer on a continuous basis for about a year.
Analysis: The claimant was an employee based upon the following factors:
- The claimant did not negotiate the compensation for the work.
- The claimant worked only on assignments given to him by the employer, and the assignments involved the employer’s customers; a true independent contractor would have received his assignments from his own customers.
- Unlike independent contractors, the claimant had no control over his own time; he had to be on 24-hour call, effectively preventing him from any attempts at developing his own business.
- The claimant performed the services in the employer’s name – if he had had his own company, he would have performed the work under his company’s name.
- Just like any employee, he worked for a pay rate imposed by the employer, instead of negotiating his own compensation.
- The repeated warnings by the employer that it would fire the claimant for refusal to make runs as instructed is conclusive evidence that the employer exercised direction and control over the services performed by the claimant.
- The claimant’s services were directly integrated into the primary service offered by the employer, indicative of an employment relationship.
In view of the above facts, the written agreement that the claimant was an independent contractor had no effect concerning this employer’s legal obligation to report the claimant’s wages and pay the appropriate state UI tax.
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