Here’s a common Independent Contractor compliance question that I’m hearing more often from client companies: Why does the consultant being dependent on a single client make him look more like an employee?
A factor that has picked up more importance in the past decade when looking at worker classification is the long term exclusivity of the relationship leading to financial dependence of the consultant on a single client company.
There are more and more rulings holding that if the consultant works exclusively for a single client company, for an extended period of time, so that all income is derived from that single source, then that consultant begins to look like an employee, not an independent contractor.
Although there are many others, here are just a couple cases that clearly state the logic and have had an impact on worker misclassification case law in recent years.
- 1. In 2001, the Illinois Supreme Court. (AFM Messenger Service v. Department of Employment Security) held that the drivers did not run a delivery business of their own, independent of the company. In its decision the court said:
“…a driver’s business existed only by reason of the driver’s employment with the AFM, which was subject to termination, at which time the driver would be unemployed…”
- 2. In the 2004 class action lawsuit of Anthony Estrada, et al versus FedEx Ground, heard in Los Angeles Superior Court, reached the same conclusion under a very similar type of case which has been appealed and upheld. The judge stated in his written ruling that the drivers (called SWAs in the decision) and FedEx Ground (FEG) were so interdependent that:
“…If lightening were to strike so that there would be no FEG there would in fact be nothing left for the SWAs to do and they would be totally bereft of business…”
In both of these cases, the courts saw there was financial dependence on a single client, which strongly contributed to the decision that the workers had been misclassified.
How do you know if the consultant is dependent on your company?
- Is your company the consultant’s only client?
- Does your company provide the consultant’s sole source of income?
- Would the consultant’s business collapse if he no longer had your company as a client?
If the answer to these questions is yes then the consultant may be classified as an employee.*
*Remember, no single factor by itself will determine if an individual is an employee or an independent contractor. All factors must be considered to form a complete picture of the working relationship before making a decision.