def: the power to influence or direct people’s behavior or the course of events.
Equally important, what if you think you have an independent contractor relationship with a worker, but exercise too much control over their work and the person is deemed to be your employee?
The Arizona Court of Appeals tackled these questions last week. Read on and gain a fingertip feel for how to hire and work with independent contractors in a way that does not make you liable for their mistakes
A FATAL ACCIDENT AND A LAWSUIT
In Santorii v. MartinezRusso, LLC, a RE/Max Professionals real estate agent was returning from a real estate sales appointment when the car he was driving crossed the center line and struck another man’s tractor-trailer. Both men died in the collision. The wife of the truck driver brought a wrongful death lawsuit against RE/Max Professionals alleging that it was vicariously liable for its agent’s negligence.
The specific issue in the case was whether real estate brokers should be held liable for their salespersons’ negligent driving. The Court answered “no.” But, in deciding this particular issue, the Court of Appeals made broad pronouncements which are applicable to all businesses.
THE COURT CONFIRMS THE APPLICABLE TEST TO DETERMINE IF A WORKER IS AN INDEPENDENT CONTRACTOR OR AN EMPLOYEE
The Santorii Court stated that the following criteria must be evaluated in determining whether an employer-employee relationship exists:
- The extent of control exercised by the master over details of the work and the degree of supervision;
- The distinct nature of the worker’s business;
- Specialization or skilled occupation;
- Materials and place of work;
- Duration of employment;
- Method of payment;
- Relationship of work done to the regular business of the employer;
- Belief of the parties.
The degree of control exercised over a worker is the main factor courts consider in deciding whether a worker is an employee. The right to control is present when a company can control the details of how work is performed and can give specific instructions with the expectation that they will be followed. Thus, where a delivery truck driver struck a motorcyclist, the Arizona Supreme Court concluded that there were fact questions regarding whether the driver was an independent contractor or an employee when the delivery company:
- designated pick-up and delivery times
- selected the delivery route, and the manner in which the papers were to be delivered
- could send a supervisor on the delivery route
- could tell the driver when to add customers and follow specific customer requests
In yet another case, the Arizona Supreme Court held that an employer was not liable for the wrongful death caused by its traveling salesman because the employer had “no control or right of control” over the manner of the salesman’s travel. The court recognized that under the contract between the employer and the traveling salesman, the employer may have had some control over sales procedures, but found that such control “would not justify an inference of any right to control the time, method or manner of the operation of [the salesman’s] automobile.” The court noted that evidence showing that the salesman could sell anywhere in the United States, sold other companies’ products, and essentially had full discretion over his own sales trips established the employer’s lack of control.
Applying the foregoing principles, the Santorii court ruled that the real estate agent was an independent contractor and, in turn, RE/Max Professionals was not liable. Despite working exclusively for RE/Max Professionals for over a six-year period, the agent was a licensed professional who had nearly complete discretion in the time, manner, and means in which he traveled to meet clients.
In addition, the contract between RE/Max Professionals and the agent identified the agent as an independent contractor who was “free to devote” his time, energy, effort, and skill as he saw fit. The agent was not required to keep specific hours, attend sales meetings, or meet any sales quotas, and although RE/Max Professionals provided optional office space, administrative services, sales leads, and training, the agent was charged a monthly fee for these services. Moreover, there was no dispute that the agent chose the territory where he worked, created his own advertisements, prospected for clients, drove his own car, worked from his home office, worked purely for commission, and set up his own appointments.
TAKEAWAY: TO AVOID LIABILITY, CAREFULLY DRAFT INDEPENDENT CONTRACTOR AGREEMENTS AND DO NOT EXERCISE TOO MUCH CONTROL
The Santorii decision does not mean that real estate companies are home free. First, the decision was narrowly limited to assessing liability for agents’ driving a car (versus, for example, negligent business practices). Second, had the brokerage company exercised more control over its agent, it easily could have been found liable for the agent’s negligence.
Santorii is a strong reminder for businesses and others to thoughtfully consider their relationships with independent contractors. This means (1) having counsel draft independent contractor agreements that, if challenged, are defensible and supportable; (2) making sure that your business does not exercise too much control over your non-employee workers; and (3) having adequate insurance if you fail to heed Nos. 1 and 2.
Getting sued is not the only problem that can befall companies who misclassify employees as independent contractors. The U.S. Department of Labor and IRS are always on the lookout for businesses that misclassify workers. For more on this topic, read this article.
For help on drafting independent contractor agreements or for further information on other employment law topics, contact Art Bourque at Bourque Law Firm.