Employer-Independent Contractor—This is a commonly used relationship, based in agency
law, where the independent contractor contracts with another to perform certain services. The
contractor is not under the direct supervision of the employer as an employee would be and the
employer is generally not responsible for torts of the contractor.
Contractors as Agents—Independent contractors are agents; the extent of the agency depends on
the nature of the relationship.
CASE: France v. Southern Equipment (S. Ct., W.Va., 2010)—France, age 16, was hired by
Hensley, d/b/a Royalty Builders, during his spring break, to help with a roofing job. Southern
hired Quality Metal Roof to put a new roof on its business building. Quality hired Hensley and
supplied him the material. France fell off the roof and was severely injured. He sued Southern for
exposing him to an inherently dangerous job. The trial court held for Southern. France appealed.
Decision: Affirmed. Hensley (Royalty Builders) was clearly an independent contractor with
respect to Southern. Southern did not control the work in any respect; it gave the contract for the
Questions: 1. Having France on the job violated federal and state employment law due to
France’s age on a dangerous worksite. Could that change Southern’s liability?
That was an argument made by France, but the court used the same analysis; Southern was not
2. France argued that Southern’s managers should have noticed that a young person was working
on the roof and inquired about it. Is that a credible argument?
A dissent argued that was the case; that some people who worked for Southern noted that one of
Add. Case: Santiago v. Phoenix Newspapers (Sup. Ct., Az., 1990)–Frausto delivered
newspapers for Phoenix Newspapers (PNI) under an agreement that said he was an independent
contractor. When delivering papers in his car he hit Santiago, who sued PNI, claiming that
Frausto was its agent. Lower courts held for PNI; Santiago appealed.
Decision: Reversed. The language in an agreement does not control; the reality of the situation
does. To determine if there is an employment or independent contractor relationship there are 8
factors:
1. The extent of control exercised by the master over the details of the work.
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. Relation of work done to the employer’s regular business.
8. Belief of the parties.
Add. Case: Daws’ Critical Care Reg. v. Dept. of Labor (Super. Ct., Conn., 1992)–Daws
provides nurses to medical facilities on an “as needed” basis. When a facility contacts Daws, it
calls nurses from a list until they find one who accepts. Daws bills the facility a pre-negotiated
fee and Daws pays the nurse a pre-negotiated wage for their services. Some nurses work for
more than one agency. Daws contends that the nurses are independent contractors; not its
employees. The Connecticut unemployment compensation administrator contended that the
nurses were employees, not independent contractors. As employees, Daws was ordered to pay
unemployment taxes to the state. Daws appealed, claiming that the nurses were independent
contractors not subject to unemployment compensation taxes.
Decision: The court found for Daws. Under the ABC test used in CT, the nurses are independent
contractors. Daws is not required to pay unemployment compensation taxes for them. The ABC
test defines whether or not a “service” being performed by a person is employment. Under the
ABC test, it is employment unless:
(A) Such individual has been and will continue to be free from control and direction in
[“Daws did not have the general right to control their nurses. … It had no such control or even
(B) Such service is performed either outside the usual course of the business for which the
[“The business of providing health care personnel does not translate into the business of caring
(C) “such individual is customarily engaged in an independently established trade, occupation,
The Daws nurses were in an independently established profession licensed by the state.
Add. Case: Michael v. Denbeste Transportation (Ct. App., Calif., 2006)–David Michael, a
truck driver, was seriously injured while working on his truck at a worksite. Michael owned his
truck and operated a sole proprietorship. Aman, a general contractor, had hired Denbeste as a
subcontractor for truck hauling services. The parties agreed to safety rules. Had Michael been
following the safety procedures, he might not have been injured. Denbeste hired Michael under a
subhaul agreement and gave him a copy of the safety agreement. After he was injured, Michael
sued Denbeste and other parties at the construction site for negligence for not providing more
safety instruction and safety equipment. The trial court dismissed the suit. Michael appealed.
Decision: Affirmed. Neither Aman, the general contractor, nor Denbeste, the subcontractor, were
liable for the injuries. Michael was an independent contractor of a subcontractor, which means
Add. Case: AFM Messenger v. Dept. of Employment Security (Sup. Ct., Ill., 2001)–The
Illinois Dept. of Employment Security audited AFM Messenger and assessed the company
$12,000 in unpaid unemployment insurance contributions for some workers. AFM protested that
it was exempt from making contributions for its drivers because they were independent
contractors under an agreement they signed with AFM. Their pay was 50 percent commissions
on deliveries made in their cars. The trial court held that the workers were employees, not
independent contractors. AFM appealed.
Decision: Affirmed. “Liability for contributions and eligibility for benefits is dependent, in part,
on the existence of an employment relationship. The determination of whether such a
relationship exists is not controlled by common law principles of master and servant and
independent contractor. Rather, we must look to the statutory definitions, which are more
Add. Info.: IRS standards: To help determine when there is an employer-employee rather than
an independent contractor relationship, IRS regs list 20 factors it will consider:
1. Instructions. A worker required to comply with instructions about when, where, and how she is
to work is ordinarily an employee. This control factor is present if the person for whom the
services are performed has the right to require compliance with instructions.
2. Training. Requiring an experienced employee to work with the employer, or requiring the
worker to attend meetings indicates that the person for whom the services are performed want
the services performed in a particular method or manner.
3. Integration. Integration of the worker into the business operations generally shows that the
worker is subject to direction and control.
4. Services rendered personally. If services must be rendered personally, presumably the
employer is interested in the methods used to accomplish the work as well as in the results.
5. Hiring, supervising and paying assistants. If the employer hires, supervises, and pays
assistants, that shows control over workers on the job.
6. Continuing relationship. A continuing relationship between worker and employer indicates
that an employer-employee relationship exists.
7. Set hours of work. The establishment of set hours of work by the employer indicates control.
8. Full time required. If the worker must devote substantially full time to the employer, and the
worker is restricted from doing other work, the worker appears to be an employee.
9. Doing work on employer’s premises. If the work is performed on the employer’s premises, that
suggests control over the worker, especially if the work could be done elsewhere.
10. Order of Sequence set. If a worker must perform services in the order set by the employer, the
worker is not free to follow the worker’s own pattern of work.
11. Oral or written reports. A requirement that the worker submit regular or written reports to
employer indicates a degree of control.
12. Payment by hour, week, month. Payment time points to an employer-employee relationship,
unless that is just a convenient way of paying a lump sum agreed upon as the cost of a job.
Payment by the job or on commission indicates an independent contractor.
13. Payment of business and/or traveling expenses. If the employer ordinarily pays the worker’s
business and traveling expenses, the worker is ordinarily an employee.
14. Furnishing tools and materials. If the employer furnishes significant tools, materials, and
other equipment, that tends to show an employer-employee relationship.
15. Significant investment. If the worker invests in facilities, such as an office, that indicates
independent contractor status.
16. Realization of profit or loss. A worker who can realize a profit or suffer a loss as a result of
his services is generally an independent contractor.
17. Working for more than one firm at a time. If a worker performs more than de minimis
services for several unrelated persons or firms at the same time that indicates independent
contractor.
18. Making service available to general public. If a worker makes services available to the
public on a regular basis, an independent contractor relationship is indicated.
19. Right to discharge. The right to fire a worker indicates employee status. An independent
contractor cannot be fired so long as the contractor produces results to meet the contract.
20. Right to terminate. If the worker has the right to end her relationship with the employer any
time she wishes, without incurring liability, that indicates an employer-employee relationship.
Master-Servant or Employer-Employee—This is an employment relationship where the
servant (employee) is employed by a master (employer). The chief difference between an agent
and a servant is that the servant generally does not have authority to act on behalf of the master
in contractual matters involving third parties (this was more relevant when more workers were
manual laborers with no duties with outsiders). The master is liable for the torts of the servant if
the tort is committed within the scope of the servant’s employment.
Employees as Servants and Agents—Agents are allowed more discretion in deciding how to
achieve a certain objective. A servant is subject to the close control of the master. Most jobs now
are a blending of servant and agent status.
Employment at Will—Most employees are not represented by a union, but rather, work under the
common-law rule of employment-at-will. This rule specifies that employers may fire employees
for any reason and employees may quit at any time. This rule, which is primarily a matter of state
law, is limited by any contract terms that may apply. Managers and supervisors are employees
likely to be employed at-will.
Add. Case: Repetti v. Sysco Corp. (Ct. App. Wisc., 2007)—Repetti’s job at Sysco included
reporting income and expenses. He learned that a corporate officer was falsifying reports to
show larger profits by moving revenue from around. Repetti complained to the president and
comptroller and was told to drop it. He was afraid he could face civil or criminal penalties for
false reporting. He continued to complain and was fired. He sued for wrongful discharge,
contending the dismissal violated public policy as the company practices may violate
Sarbanes-Oxley. His suit was dismissed; he appealed.
Decision: Affirmed. Repetti was an at-will employee. The fact that his employer may have been
violating a law does not eliminate its ability to terminate him. Sarbanes-Oxley has a
Add. Case: Geary v. U.S. Steel (Sup. Ct., Pa., 1974)–Geary sold oil and gas pipe for U.S. Steel
for 14 years. He determined that a new pipe for high-pressure use was defective and dangerous.
His boss told him to ignore it and follow orders. Geary went around his boss to a vice president
to explain the problem. The pipe was removed from the market. Geary was fired for going
around his boss. He sued. Court dismissed, he appealed.
Decision: Affirmed. “The law has taken for granted the power of either party to terminate an
employment relationship for any or no reason.” Geary wants to be protected because he was
Add. Info.: Jury Verdicts found that in California in the 1990s, ten wrongful termination suits
were filed monthly. Plaintiffs won half; one verdict was for over $15 million. Employers are
forced to treat termination much more carefully than they did a decade ago.
Add. Case: Gilmartin v. KVTV-Channel 13 (Ct. App., Tx., 1998)–Gilmartin alleged that when
he was hired he was told his work would be year to year, subject to annual renewal based on
performance, and he would be fired only for good cause. Employer denied that, saying he was
told he would work so long as his work was satisfactory. After one year and five months,
Gilmartin was fired because of falling station profits. He sued, contending he was not fired for
good cause as supposedly promised, so there was a breach of contract. Trial court granted
employer’s motion for summary judgment. Gilmartin appealed.
Decision: Affirmed. “The general rule in Texas, as in most states, is that ‘absent a specific
agreement to the contrary, employment may be terminated by the employer or the employee
at-will, for good cause, bad cause, or no cause at all.’ Such at-will employment, however, may
Add. Case: Bernard v. IMI Systems (S. Ct., NJ, 1993)–When IMI hired Bernard, he received a
letter of employment stating, “Your compensation will be at the rate of $80,000 per annum to be
paid semimonthly.” He began work on November 15, 1987. On May 12, 1988, he was fired
effective May 20. He sued, claiming that he was owed a full year of salary, since the employment
letter said $80,000 per year and he was fired after six months.
Decision: IMI’s position upheld. Unless an explicit statement to the contrary is made, employees
and employers assume employment-at-will. States recognize exceptions to the at-will rule, but
terms of employment, such as the salary statement in this case, do not usually create a
Add. Case: Pearson v. Simmons Precision (S. Ct., Vt., 1993)–Pearson was hired to work on
the fuel system for the B-2 bomber. He moved to Vermont and began work in July, but was laid
off in September, due to cutbacks in spending on the B-2. He had been told that even though the
B-2 could end, the company had plenty of other work, so he should not worry, as military
contracts were only 40% of business. In fact, they were 70% of the business, and if the B-2 went
under, the company knew there would probably be no work for Pearson. He sued for negligent
misrepresentation.
Decision: The Vermont Supreme Court upheld $163,000 for lost wages. Even though
employment was at-will, Pearson was hired based on discussion about future business
expectations. The employer misrepresented facts about the company’s prospects. Restatement of
Contracting to Limit At-Will Employment—Cases claiming breach of employment contract
usually fall under three categories: 1) an express contract exists concerning employment for a
fixed time; 2) an implied contract may be found that restricts termination procedures; past
company policy is often a guide; and 3) an implied covenant of good faith and fair dealing in
employment relationships has been imposed in some states, but it not common. The Guz case is
representative of normal results.
CASE: Guz v. Bechtel National—Guz worked for Bechtel for 22 years and had a good
employment record. During a company reorganization his position was eliminated. He sued
Bechtel for breach of an implied contract to be terminated only for good cause and for breach of
an implied covenant of good faith. The company had a policy of only dismissing workers for
cause, which did not apply to Guz, and in case of a lack of available work. Guz noted that the
company was profitable. The trial court dismissed the case. The appeals court held that he has a
claim for breach of an implied-in-fact contract to be dismissed only for good cause. Bechtel
appealed to the high court of California.
Decision: Reversed. There is a strong presumption of employment at will. Contractual limits may
exist, but none are shown here. Good performance over years does not create a stronger case by
Questions: 1. Is there an incentive for employers to make it very clear to employees that they are
strictly at will and there is no assurances of continued employment?
There is an employment contract in all cases. One is offered employment and provides labor in
2. Is there an employment contract? Guz had to follow the requirements of his employer; what
consideration did the employer give?
There is an employment contract in all cases. One is offered employment and provides labor in
Add. Case: Baum v. Helget Gas Products (8th Cir., 2006)–Baum met with the president of HGP to discuss a
position and said he wanted a contract for at least three years. He outlined the agreement in meeting notes that
specified salary and job duties for the next three years. When he was hired, his supervisor signed the meeting notes,
which were marked as a contract. The president of the company never signed the agreement. After less than a year,
Baum was fired. The president said he failed to live up to expectations. Baum sued for breach of contract. The
district court granted HGP summary judgment, holding that the agreement may be an employment contract, but it
was not for a definite term. Baum appealed.
Decision: Reversed. In Missouri, in the absence of a contract for employment for a definite term or a contrary
statutory provision, an employer may discharge an employee at any time, without cause or reason, or for any
reason. Unless a contract specifies the duration of employment, or limits the reason for discharge, termination may
Add. Case: Hunter v. Up-Right (S. Ct., Cal., 1993)–Employee with good work record for 14
years said he was fired without cause and signed resignation papers only to get severance pay.
Employer said he resigned and that he had an excessive absence problem. Former supervisor
testified Hunter was good employee and company policy was no termination without good cause.
Jury awarded Hunter $38,013 (value of economic losses resulting from termination) for breach
of implied contract not to terminate employment without good cause and for breach of implied
covenant of good faith and fair dealing. Jury also awarded $120,000 for fraud.
Decision: Modified. “Up-Right’s misrepresentation is indistinguishable from an ordinary
constructive wrongful termination. The misrepresentation trans-formed what would otherwise
have been a resignation into a constructive termination.” The jury found the constructive
Add. Case: Schuster v. Derocili (Sup. Ct., Del., 2001)–Schuster worked as an at-will employee
for Derocili, the president. She contended that during the 15 months she worked for Derocili, he
made numerous sexual comments to her and touched her inappropriately, despite her rejections.
She was fired for unsatisfactory performance. Her complaint of sexual harassment, made to the
Delaware Department of Labor, was rejected as unsubstantiated. She then sued Derocili for
breach of contract in the employment relationship. Trial court dismissed the case. Schuster
appealed.
Decision: Reversed. Delaware recognizes a common law cause of action for a breach of a
covenant of good faith and fair dealing implied in an at-will employment contract based upon a
Add. Info.: The S.D. supreme court (Breen v. Dakota Gear) held that an employer may
discharge an at-will employee without any showing of good cause, regardless of length and
quality of employee’s service, and that the at-will relationship does not imply a covenant of good
faith and fair dealing. The Minn. S.Ct. held (Ruud v. Great Plains Supply) that general
statements by an employer are not sufficient to modify an at-will relationship. An employee,
accepting a new assignment, was told by the president and VP of his company that “Good
employees are taken care of” and “you are considered a good employee.” When the new
assignment did not work out, the employee was dismissed. General statements of goodwill are
not a modification of the at-will employment agreement; they are too vague for promissory
estoppel to be invoked.
Employee Handbooks—Many companies issue handbooks outlining company policy, benefits,
and procedures. Most courts hold that these handbooks create binding legal obligations if the
necessary elements of an employment contract can be proved. If employers make it clear that the
rules in handbooks are binding, employees may rely on these rules. Many handbooks state in
bold that the handbook is not a contract and have employees sign a disclaimer as to that fact and
that the employee is at will. If employers follow their own procedure properly, the chances of a
successful suit for wrongful termination are small.
Add. Case: Scott v. Pacific Gas and Electric (Sup. Ct., Cal., 1995)–Two long-time engineers
for PG&E were demoted and had pay cut 25% after an evaluation said their work was poor and
that there was a conflict of interest because they also worked, on their own time, for an
engineering consulting firm. The fact that they had other work was well known and did not
violate company policy. They sued, alleging that PG&E breached an implied contract term not
to demote employees without good cause. The PG&E policy manual stated the steps that would
be taken in disciplinary matters; which were not taken in this case. They lost and appealed.
Decision: Reversed for plaintiffs. The evidence was that PG&E intended to apply its disciplinary
policy uniformly; it expected employees to believe the manual and that the company would abide
Add. Case: Rains v. Becton, Dickinson (S. Ct., Neb., 1994)–Rains worked at a plant for 14
years. One morning she felt ill; without telling anyone, she climbed into a loft and went to sleep.
Her supervisor found her and fired her. The company had a handbook; Rains had signed a
statement that she received it and understood it. Most violations were treated in a three-step
process: verbal warning, written warning, and suspension or dismissal. Serious infractions
could result in immediate dismissal. Rule in question here: “LEAVING PLANT OR
WORKPLACE—Permission must be obtained from your supervisor to leave the plant at any time
other than lunch period or scheduled quitting time. You are not allowed to leave your assigned
place of work without proper authorization, personal needs excepted.” The company viewed her
action as serious and justifying immediate dismissal; she contended it violated the handbook
three-step process.
Decision: Affirmed for employer. The handbook stated that the three-step process was a
guideline that was to generally be used. It said, “certain rule infractions are so serious” that
Add. Info.: A similar case (Dent v. Jack Fruth, S.Ct., W.Va.) went the other way. The court held it
was up to the jury to decide if there is a contract covered by the handbook and, then, if the
discharge was justified under the contract (handbook). The Utah high court held (904 P.2d 1110)
that a clear disclaimer in an employee handbook that employment is at-will precludes a finding
of an implied-in-fact contract to modify that relationship. The cases in this area tend to be in
flux. Wrongful dismissal may also show up in litigation in the form of a defamation suit. A
mistake employers make is revealing the cause of the dismissal to others as that may be
defamation. Proctor & Gamble fired a long-time employee and publicly accused him of stealing
a telephone from the company. Because of the theft assertion, he could not find further
employment. A Dallas jury found the asserted theft to be false and awarded the employee $15.6
million.
Evaluations—Employee evaluations should be consistent with any statements in a handbook.
That aside, consistency is important and provides a strong defense for an employer sued for
wrongful discharge. Despite employment at will, juries are sympathetic with employees,
especially if it appears they are treated unfairly. The evaluation process should be consistent
(ranking people high and then dismissing someone after many high evaluations looks bad).
Issue Spotter: Can You Be Too Encouraging to Employees?
It is very unlikely that happy talk will be found to create a contract of employment or be held to
violate the notion of good faith and fair dealing. By being supportive of the employee, the
employer is engaging in good faith and fair dealing–there is no obligation to support a
non-productive person for long. Employers do not like to lose good employees because hiring
and training new people is costly–better to encourage the existing employees. There should be no
fear of being generally supportive of an employee, so long as specific statements are not made
that promise particular benefits (unless the company will in fact provide such).
Employment-at-will is not easily broken if it is known to employees that is the rule–which
should be stated clearly in the handbook, including a statement that the rule dominates, even if
statements are made to the contrary.
Social Media—Improper use of electronic media can cause expensive problems for employers.
Controls should be placed on who is authorized to post on official company media and limit
linking to outside media. Consistent trolling the media to look for improper mentions of the
company, its personnel, or trademarks is useful as platform providers will remove improperly
posted material. A clear company policy, such as blogging on company matters, provides
guidance and makes discipline or termination easier in case of violation.
Add. Case: Meyerkord v. Zipatoni (Ct. App., Mo., 2008)–Meyerkord worked for Zipatoni, a
marketing services company. He was listed as the registrant for Zipatoni’s account with
Register.com for the registration of its websites. After Meyerkord left Zipatoni, it registered a
new website and listed Meyerkord as registrant. The website, www.alliwantforxmasisapsp.com,
was used in a campaign for Sony Play Station Portable (PSP). After the campaign began,
consumers and bloggers expressed concerns about the campaign and those associated with it,
naming Zipatoni and Meyerkord in their web discussions. Meyerkord sued Zipatoni for false
light invasion of privacy because it failed to remove him as registrant for its website account. As
a result, he claims, he was publicly attacked as a result of the PSP campaign, thereby damaging
his reputation and subjecting him to harassment. The trial court dismissed the suit. Meyerkord
appealed.
Decision: Vacated and remanded. False light invasion of privacy does not require one to be
defamed. It is enough that one is given unreasonable and highly objectionable publicity that
attributes to him false characteristics. The person must be put in a false light that would be
highly offensive to a reasonable person. A reasonable person could also be expected to believe
International Perspective: Workplace Data Privacy in the EU
Rome I regulations are being applied EU-wide to replace different rules in each country. The
regulations cover employment contracts including length of work periods, rest periods, paid
holidays, minimum pay, safety, discrimination, and other key issues. A U.S. firm sending an
employee to the EU under a U.S. employment contract is likely to find that some Rome I
regulations will take precedence over certain terms of the employment relationship, so caution is
advised. In the EU, the Convention on Human Rights provides tough privacy rules in favor of
employees. There is much less ability to snoop on employees work phones or emails than in the
U.S. without proper procedure.
TORT LIABILITY FOR EMPLOYERS AND PRINCIPALS—A principal is liable for the
torts of an agent if the tort was authorized by the principal. A principal is also liable for an
agent’s unauthorized torts as long as the tort occurred within the scope of the agent’s
employment.
Principal’s Liability—In imposing liability on a principal for the torts of an agent, the courts
generally use one of two liability doctrines: vicarious liability and respondeat superior.
Restatement (Third) Agency states that principals are liable to third parties for harm when an
agent acts with actual authority or the principal ratifies the conduct and that conduct is tortious.