Independent contractor status in North Carolina
Recently, a former newspaper carrier filed a wage claim with the North Carolina Department of Labor, claiming employee status at a daily newspaper in the state. The newspaper carrier filed with the state Department of Labor, rather than federal DOL, because the federal wage and hour law contains a complete exemption for newspaper carriers; the North Carolina wage and hour law does not.
Of course, the newspaper stated that the individual was an independent contractor, not an employee. As part of its investigation, the North Carolina Department of Labor asked the company to provide the following information, in order to determine whether there was an employer/employee relationship:
1. The extent to which the work performed is an integral part of the employer's business. If the work performed by a worker is integral to the employer's business, it is more likely that the worker is economically dependent on the employer and less likely that the worker is in business for himself or herself. For example, work is integral to the employer's business if it is a part of its production process or if it is a service that the employer is in business to provide.
2. Whether the worker's managerial skills affect his or her opportunity for profit and loss. Managerial skill may be indicated by the hiring and supervision of workers or by investment in equipment. Analysis of this factor should focus on whether the worker exercises managerial skills and, if so, whether those skills affect that worker's opportunity for both profit and loss.
3. The relative investments in facilities and equipment by the worker and the employer. The worker must make some investment compared to the employer's investment (and bear some risk for a loss) in order for there to be an indication that he/she is an independent contractor in business for himself or herself. A worker's investment in tools and equipment to perform the work does not necessarily indicate independent contractor status, because such tools and equipment may simply be required to perform the work for the employer. If a worker's business investment compares favorably enough to the employer's that they appear to be sharing risk of loss, this factor indicates that the worker may be an independent contractor.
4. The worker's skill and initiative. Both employees and independent contractors may be skilled workers. To indicate possible independent contractor status, the worker's skills should demonstrate that he or she exercises independent business judgment. Further, the fact that a worker is in open market competition with others would suggest independent contractor status. For example, specialized skills possessed by carpenters, construction workers, and electricians are not themselves indicative of independent contractor status; rather, it is whether these workers take initiative to operate as independent businesses, as opposed to being economically dependent, that suggests independent contractor status.
5. The permanency of the worker's relationship with the employer. Permanency or indefiniteness in the worker's relationship with the employer suggests that the worker is an employee, as opposed to an independent contractor. However, a worker's lack of a permanent relationship with the employer does not necessarily suggest independent contractor status because the impermanent relationship may be due to industry-specific factors, or the fact that an employer routinely uses staffing agencies.
6. The nature and degree of control by the employer. Analysis of this factor includes who sets pay amounts and work hours and who determines how the work is performed, as well as whether the worker is free to work for others and hire helpers. An independent contractor generally works free from control by the employer (or anyone else, including the employer's clients). This is a complex factor that warrants careful review because both employees and independent contractors can have work situations that include minimal control by the employer. However, this factor does not hold any greater weight than the other factors. For example, a worker's control of his or her own work hours is not necessarily indicative of independent contractor status; instead, the worker must control meaningful aspects of the working relationship. Further, the mere fact that a worker works from home or offsite is not indicative of independent contractor status because the employer may exercise substantial control over the working relationship even if it exercises less day-to-day control over the employee's work at the remote worksite.
The publishing company gave the six questions a lot of thought and provided very detailed answers, summarized below:
1. With respect to question 1, the company quoted appropriate paragraphs from the written agreement. Additionally, the company made the point that the newspaper is not in the distribution business, but rather is a manufacturing enterprise. Distribution is contracted out. The company provided evidence of tax treatment as an independent contract, and that the agreement did not require the contractor's full-time services.
2. In response to question 2, the company provided detailed documentation concerning the fact that the contractor is responsible for all expenses and equipment, and absolutely had the opportunity for profit or loss. Factors affecting profitability include: type of vehicle, fuel purchases, efficient sequence of delivery, the use of substitutes and more.
3. With respect to question 3, the company again, in detail, emphasized the contractor's responsibility to provide all equipment. Great emphasis was placed on the fact that vehicle ownership is a hallmark of independent contractor status.
4. In the answer to question 4, the company emphasized the right of entrepreneurship on the part of the independent contractor newspaper carrier – and the right of the contractor to hire others and/or subcontract to others.
5. In response to question 5, the company pointed out that the contract was for a specific term or duration of one year. This term was negotiated.
6. With respect to question 6, the company emphasized the fact that the written agreement gives the contractor the right to control the manner, means and method of delivery. The company also emphasized that the rates in the contract were negotiated. The company also noted that there are no managerial employees in the field monitoring delivery, and that delivery occurs away from the premises of the company.
After considering the company's detailed response to the six questions, the North Carolina Department of Labor determined that the individual making the wage claim was not an employee, but rather was an independent contractor.
Keys to this successful outcome were the written agreement and providing a thoughtful, detailed response to the six questions. Responding to the questions did not default to Human Resources. Rather, the questions were answered by the circulation director, in consultation with experienced independent contractor counsel.
The daily newspaper involved consulted The Zinser Law Firm, P.C. on this case.
L. Michael Zinser is the founding partner of The Zinser Law Firm in Nashville, Tenn. The firm, which has a heavy concentration of clients in communications media, represents management in the area of labor and employment. Zinser can be reached at (615) 244-9700 or email@example.com.