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California Contract Drafting: Employee vs Independent Contractor

Many San Diego and California businesses have employees and many have independent contractors, and some have both. Whether a worker is considered an “employee” or an “independent contractor” has important implications for many aspects of a business including:

  • Labor laws
  • Taxation — who pays FICA
  • Workers’ compensation
  • Hazard liability
  • Business liability to third parties
  • And more

The importance of employment and independent contractor agreements should not be underestimated. Your trusted and experienced business attorney can and should provide guidance on what to include in various agreements depending on what type of relationship you want to create. In this article, we provide some basic information on the law and provide some insight on how to keep your “employees” separate from your “independent contractors,” legally speaking.

San Diego Businesses: An Employee or an Independent Contractor?

Under California law, the touchstone of the employment relationship is whether the “employer” has the right to control the “manner and means of accomplishing the result desired.” In other words, what is the extent to which you, as the boss, have control over how the work is done?

In addition to this “control test,” California courts will take evidence concerning and will evaluate the following additional facts:

  • Is the worker engaged in a distinct occupation or business?
  • Is the worker doing work similar to work done by the business?
  • Does the worker need licensure?
  • Is the work being done typically done with supervision or without supervision?
  • What is the level of skill required?
  • Does the worker bring his/her own tools/implements?
  • Where does the person do the actual work? At his/her own home/office or at the “employer’s” location?
  • What is the method of payment? By the hour/week or by the job?
  • What is the term of “employment? Short-term, long-term, indefinite or project-based?
  • Is there a contract? What does the contract say?

Under California law, no particular fact or factor has more weight than another; even the right to control. All of these and other facts that might be relevant to a unique case are taken together. As said in State Compensation Ins. Fund v. Brown, 32 Cal.App.4th 188, 202 (1995), “the process of distinguishing employees from independent contractors is fact specific and qualitative rather than quantitative” and the right to control the day-to-day activities of the worker is a fact that “retains significance, but [said fact] is no longer determinative.”

San Diego Businesses: Crafting the Employment and Independent Contractor Agreements

As noted, one of the factors that California courts use to determine whether a worker is an employee or an independent contractor is what the parties say about the relationship and what is said in the work contract. Thus, at the bare minimum, if you want an independent contractor relationship, you should have your business lawyer custom-draft an independent contractor agreement for your worker to sign. The agreement should be titled “Independent Contractor Agreement” (“ICA”) and should state specifically that the intent of the parties is to create an independent contractor relationship. The agreement should also forswear an intent to create an employer-employee relationship.

Further, your ICA can contain language that will help establish the independent contractor relationship if there is ever a legal test. Your ICA can also help guide how you manage your worker.

As an example, one factor in the control test is whether you set the time of work. Does your worker have be at the job by 9:00 am? Can your worker leave anytime he or she wants? If you require your worker to be “9-to-5,” that is at least one fact suggesting an employment relationship. However, your ICA can help solve this problem by having a clause similar to this:

“Work Hours — Independent Contractor acknowledges that he/she must work during normal business hours — 9:00 am to 5:00 pm — because Independent Contractor’s tasks include interacting with various departments for input and approvals, attending project meetings, being available for questions and follow-ups, etc. Independent Contractor understands and agrees that such is necessary for the Company’s operations and for the Independent Contractor to accomplish the tasks set forth in this Agreement. Independent Contractor’s need to work during “normal business hours” does not serve to create an employment relationship.”

Similar clauses, unique to your business, can be drafted with respect to use of company tools and resources, physical or remote locations, task sequencing, reimbursements, reporting, number of hours worked, exclusivity of work, etc.

Contact San Diego Corporate Law Today

If you want more information on legal issues with respect to distinguishing employees from independent contractors or if you need help with employment agreements or drafting ICAs, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has the skills and experience to provide a full array of transactional legal services for San Diego and California businesses. Mr. Leonard can be reached at (858) 483-9200 or via email.

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