A threshold consideration in many employment matters is whether an employer- employee relationship exists.  The law affords many legal protections for employees, which it does not afford to independent contractors.  Additionally, employers have many financial responsibilities regarding employees, which do not exist for independent contractors.  As such, employers often incorrectly classify employees as independent contractors in order to reduce their legal and financial obligations. 



When an employer incorrectly classifies an employee as an independent contractor, the employer is not relieved of its financial and legal responsibilities to that employee.  In fact, the employer may be responsible for significant penalties under for unpaid taxes, unemployment, disability, and workman’s compensation insurance. 

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There are several factors to determine whether an individual is an employee or an independent contractor.  Different laws and regulations use different factors or place different weight on factors, which means that sometimes an individual may be classified as an employee for one purpose yet remain an independent contractor for another.  Consequently, it is necessary to examine each service relationship and then apply the law to those facts.  Most state laws and regulations in California apply the "multi-factor" or the "economic realities" test adopted by the California Supreme Court in the case of S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341.  In applying the economic realities test, the most significant factor is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed.  An employer-employee relationship may still be found in situations where there is an absence of control over work details.   In Yellow Cab Cooperative v. Workers Compensation Appeals Board, an employee-employer relationship was found where (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary.



In addition to the primary control test, courts also consider other factors depending on the issue involved.  These factors include:

“1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;

2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.”
Above quoted text taken from:  http://www.dir.ca.gov/dlse/faq_independentcontractor.htm)

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