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Independent Contractors vs. Employees: Understanding Liability & Risk
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Dana Coates
Strategic Partnerships

Employer Liability for Independent Contractors’ Work-Related Injuries


Think hiring independent contractors relieves you of liability? Think again. Courts often redefine these relationships, sometimes in costly ways. Here are some real-world cases:

• A cosmetologist, labeled as an independent contractor, injured his back lifting a 5-gallon water bottle. The employer was ordered to cover workers’ compensation benefits.

• An actor hired a stuntman for a specific fall. Because the actor dictated the fall’s details, the court ruled the stuntman was an employee, making the actor liable.

• A circus clown and trapeze artist were deemed employees since, without them, there would be no circus.

• A food salesman died in a car accident after attending a dinner meeting, and his family collected workers’ comp benefits.

• A carpenter hired for a one-off garage remodel was legally considered an employee, surprising the homeowner.

• A New Jersey court ruled an insurance sales staff—despite contracts labeling them independent contractors—were employees due to the integral role they played in the business.

Each case involved individuals classified as independent contractors. The courts disagreed and ruled in favor of workers’ comp benefits. This legal gray area is tricky, and employers must proceed with caution.

Employee vs. Independent Contractor: Why It Matters

The difference between an employee and an independent contractor can mean the difference between employer liability and protection. Courts use two primary tests to determine status:

1. Control Test – Who dictates the work details? Who provides the tools? Who sets the hours?

2. Nature of Work Test – Is the worker performing a core function of the employer’s business?

How Courts Decide

Courts analyze several factors to determine employment relationships, including:

Control Over Work – Who determines work methods, schedule, and supervision?

Provision of Tools & Equipment – Does the employer supply necessary tools?

Payment Structure – Hourly wages suggest employment, while per-project payments indicate independent contractor status.

Right to Terminate – An employer’s ability to fire without liability suggests employee status.

Business Integration – Is the work integral to the employer’s core business?

A Simple Illustration

Consider two bakers:

1. Factory Worker: Works 8 AM–5 PM in a factory, earning $7 per hour under supervision. Clearly an employee.

2. Independent Baker: You order a custom birthday cake from a local baker. She sets the price, timeline, and design. You have no say in her work process. Clearly an independent contractor.

Now imagine a scenario that blurs these lines. The legal battlefield lies in these gray areas.

The Control Test: Who’s in Charge?

The right to control work details is a major factor. Employers can specify job expectations, but dictating how a job is done may cross into employment territory. Courts also consider:

Equipment Ownership: If the employer provides valuable tools, the worker is likely an employee.

Payment Structure: Hourly wages strongly indicate employee status; project-based pay suggests contractor status.

Firing Rights: Employees can be fired at will; contractors have contractual rights to job completion.

The Nature of Work Test: Essential to Business?

Courts are increasingly considering whether a worker is part of a company’s core business. The rationale? If a company depends on a worker’s role to function, that worker might be an employee, even with an independent contractor agreement in place.

Take the insurance sales staff case. They:

• Set their own schedules.

• Worked on commission.

• Covered their own expenses.

• Had no office space.

Despite this, the court ruled them employees because their work was essential to the business.

Similar logic applied in cases involving circus performers and real estate agents, reinforcing that core business functions often tip the scales toward employee status.

Special Cases: Family Members, Volunteers & Debt Work

Spouses & Family Members: Courts may recognize contractual relationships between spouses or parents and children, granting workers’ comp eligibility in some cases.

Volunteers: Generally not employees unless some form of compensation (e.g., donations made in their name) exists.

Debt Work: If someone works to discharge a debt, courts may view it as paid labor, triggering liability.

Avoiding Costly Mistakes

Misclassifying workers can lead to major financial and legal consequences. Employers should:

1. Review Work Arrangements Carefully – Clearly define roles in contracts, but recognize that courts prioritize function over form.

2. Consult Experts – Legal and insurance professionals can provide guidance before issues arise.

3. Protect Against Liability – Ensure appropriate workers’ compensation and liability coverage.

Need help navigating employment classifications and insurance coverage? Contact UWIB Risk & Insurance Solutions for expert guidance.