Category Archives: Employer liability

NEW ARIZONA CASE EXPLORES COMPANY LIABILITY FOR THE ACTS OF INDEPENDENT CONTRACTORS

Control
  

def: the power to influence or direct people’s behavior or the course of events.

Because employers “control” the acts of their employees, courts hold businesses liable for employees’ conduct performed in the course and scope of their employment.  Example:  when a truck driver employed by ABC Trucking crosses a double yellow line and kills an oncoming motorist, the truck driver and ABC Trucking are both liable for negligence.

But what if that same driver is an independent contractor, not an employee of your company?  Or what if the driver is an independent contractor your family hired to move its furniture across town, or shuttle your kids between ball games?  Would you still be liable even though the driver was not your employee?

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

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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:

  1. The extent of control exercised by the master over details of the work and the degree of supervision;
  2. The distinct nature of the worker’s business;
  3. Specialization or skilled occupation;
  4. Materials and place of work;
  5. Duration of employment;
  6. Method of payment;
  7. Relationship of work done to the regular business of the employer;
  8. 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.

WRONGFUL TERMINATION: EMPLOYERS CANNOT HIDE BEHIND THE AT-WILL DOCTRINE

I often hear the terms “at-will” and “right to work” used interchangeably and/or incorrectly.  The most common misuse:  “This is a right to work state, so I can fire an employee any time!”  Not so fast.

This article discusses what these common employment terms really mean.  Equally important, it  provides businesses with a user friendly guide to when they may — and may not — terminate employees.

“RIGHT TO WORK” HAS NOTHING TO DO “AT-WILL” EMPLOYMENT

Arizona is one of a number of states that has a “right-to-work” provision in its Constitution.  Article XXV of the Constitution states:

“No person shall be denied the opportunity to obtain or retain employment because of non-membership in a labor organization, nor shall the State or any subdivision thereof, or any corporation, individual or association of any kind enter into any agreement, written or oral, which excludes any person from employment or continuation of employment because of non-membership in a labor organization.”

This provision, effective since 1946, prohibits unions from requiring employers to hire only union employees. An Arizona statute restates this language verbatim.

Thus, “right to work” is a term that has little or nothing to do with “at-will” employment (described below).  It is a term that deals strictly with unions — restricting their ability to force employees to join and pay union dues.  Right to work laws are rarely invoked these days — particularly in Arizona, which has a relatively low union presence.

AT-WILL EMPLOYMENT:  EMPLOYERS HAVE SIGNIFICANT POWER IN FIRING EMPLOYEES, BUT LOSE THAT POWER WHEN THEY FAIL TO FOLLOW THE LAW 

“At-will” employment means that the employee may be terminated from employment at any time for any lawful reason or for no reason.  Similarly, at-will employees may resign at any time for any or no reason.

Despite the much heralded strength of the at-will doctrine, Arizona businesses are held liable for wrongful discharge if employees establish any one of the following:

  • Breach of a written contract
  • The termination was in violation of an Arizona statute
  • The termination was in retaliation for the employee’s reasonable disclosure of the employer’s violation of state law.  A retaliation claim requires (1) a reasonable disclosure of information, (2) that the disclosure be made to a supervisor with authority to investigate or the employee of a state entity, (3) that the employee believes that the employer is violating or will violate the Arizona constitution or Arizona statutes, (4) that the employee’s belief is reasonable, and (5) that the employer “terminated the employment relationship” because of the disclosure.
  • The termination was in retaliation for the refusal by the employee to commit an act or omission that would violate the Constitution of Arizona or the statutes of Arizona
  • The termination was in retaliation for the exercise of rights under the workers’ compensation statutes
  • The termination was in retaliation for service on a jury
  • The termination was in retaliation for the exercise of voting rights
  • The termination was in retaliation for the exercise of free choice with respect to non-membership in a labor organization
  • The termination was in retaliation for service in the national guard or armed forces

FEDERAL LAWS WHICH ALSO PROVIDE A VARIETY OF CLAIMS DESPITE THE AT-WILL DOCTRINE

There are many federal laws which also provide at will employees with claims for wrongful discharge.  I have brought and defended claims under the following laws, among others:
  • Title VII, which prohibits discrimination based on race, color, religion, sex, or national origin
  • The Age Discrimination in Employment Act of 1967 (ADEA), which protects individuals who are 40 years of age or older
  • The Americans with Disabilities Act of 1990, which prohibits employment discrimination against qualified individuals with disabilities
  • The Pregnancy Discrimination Act, which prohibits discrimination on the basis of pregnancy, childbirth, or related medical conditions
  • The Genetic Information Nondiscrimination Act of 2008, which prohibits employment discrimination based on genetic information about an applicant, employee, or former employee
  • The Family Medical Leave Act, which entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave
  • The Fair Labor Standards Act, which establishes minimum wage, overtime pay, recordkeeping, and youth employment standards
  • The False Claims Act, which imposes liability on persons and companies (typically federal contractors) who defraud governmental programs
  • Sarbanes Oxley, which protects employees of public companies who ‘blow the whistle’ by reporting conduct that they reasonably believe constitutes a violation of federal law relating to financial, securities or shareholder fraud

PRE-TERMINATION QUESTIONS EVERY EMPLOYER SHOULD ASK

A business can always find a purported “reason” to fire an employee.  Before that decision is made, however, the business should consider:

  • Might the employee have damaging information regarding the company’s affairs, including knowledge of illegal, unethical, or otherwise improper conduct by ownership or management?
  • What is the employee’s documented past work record? If it is good — no written discipline coupled with raises and/or favorable reviews and comments —  then the termination may be deemed pretextual.
  • Is there any record of the employee complaining or uncovering improper conduct by the company? If so, the risk of a pretext finding rises dramatically.
  • What are the chances the now ex-employee will bring a lawsuit against the company? What sort of claims can be brought and what is the company’s potential exposure?
  • How will the ex-employee appear before a jury? Does he or she have an exemplary past?
  • How will your own employees and ex-employees appear? Do they uniformly support your position or will some provide evidence against you?
  • What will it cost in dollars, time, and bad publicity to defend a lawsuit?
  • Can there be collateral damage (lost sales, contracts, or clients; government investigations; penalties, etc.)?

Failing to identify and correctly answer these questions can result in massive pain.

CONCLUSION

The “at-will” doctrine affords employers with a great deal of autonomy in making employment decisions.  However, there are limits to an employer’s power — limits that are well-defined in state and federal laws.

Businesses should at least know of the existence of laws that can be applied against them; then, they will be able to make informed, logical, and defensible employee decisions (please see The Dark Side of Employee Discipline for a discussion of common employer mistakes).

Management training is critical when it comes to knowing the law.  Ensure that your managers are trained by legal counsel on an annual basis.  This preventive maintenance will enable management to (1) know current laws and (2) spot potential issues as they arise.  No one wants to learn the law only as the result of an EEOC charge or whistleblower lawsuit.

In sum, businesses can easily avoiding creating their own pain by knowing the law and following it.  This week’s video — “My Own Prison” by Creed — evokes the type of pain that can be felt by as a result of poor employment decisions: