Employment Law and Rule of Law

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Scenario 1: Patricia began working for Encyclopedia Britannica as a part-times sales representative in 1986. Her position required selling Encyclopedia Britannica's educational products. Until 1999, she worked as a part-times sales representative and then a district manager for Encyclopedia Britannica. In 1999, Encyclopedia Britannica decided to separate the parent division from the school and library division and reorganize its sales force by "outsourcing:" contracting with individual "regional directors" who would in turn contract with individual sales representatives. The same people who had worked for Encyclopedia Britannica under the previous arrangement filled many of the positions under the new structure, in which branch managers became separately incorporated regional directors and district managers while sales representatives took positions with the newly formed companies.

Patricia signed a contract with Sam, a former Encyclopedia Britannica branch manager who had formed her own corporation and gathered a sales force comprised largely of former Encyclopedia Britannica sales representatives. Patricia eventually became a territory coordinator, a position slightly above sales representative but still reporting to Sam. In 2001, Patricia was told that she was losing her territory and would no longer be selling Encyclopedia Britannica products. Patricia sued Encyclopedia Britannica, claiming that the loss of her territory was effectively a termination. Was her suit successful, i.e., was Patricia an employee or an independent contractor? Why?

Response:

Although Patricia signed a contract initially, making her an independent contractor, it appears she moved to being considered an employee when she became territory coordinator (e.g. a position slightly above sales representative but still reporting to Sam). If Patricia is now an employee (versus independent contractor) as it appears she is, then her suit would probably not be successful, mainly because of the "at will' legislature, where the employer can terminate employment without reason as long as it is not under a protected category (e.g., discrimination in violation of Title VII), where it appears not to be.

However, if Patricia was still under contract, she could make the case for wrongful termination (see excerpt below, and Patricia would need to have these conditions to be considered an independent contractor. So, who is an is an Independent Contractor (IC)? "A general rule is that the [employer] have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result. Example: Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies that she obtained through advertisements. Vera is an independent contractor" (http://www.irs.gov/businesses/small/article/0,,id=99921,00.html).

Interestingly, there is no set definition of the term "independent contractor" and as such, one must look to the interpretations of the courts and enforcement agencies to decide if in a particular situation a worker is an employee or independent contractor. "In handling a matter where employment status is an issue, that is, employee or independent contractor, DLSE starts with the presumption that the worker is an employee. Labor Code Section 3357. This is a rebuttable presumption however, and the actual determination of whether a worker is an employee or independent contractor depends upon a number of factors, all of which must be considered, and none of which is controlling by itself. Consequently, it is necessary to closely examine the facts of each service relationship and then apply the law to those facts. For most matters before the Division of Labor Standards Enforcement (DLSE), depending on the remedial nature of the legislation at issue, this means applying the "multi-factor" or the "economic realities" test adopted by the California Supreme Court in the case of S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341. In applying the economic realities test, the most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed."

In fact, there are additional factors that may be considered depending on the issue involved are:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;

2. Whether or not the work is a part of the regular business ...