Independent Contractor Status May Turn on Whether Worker Has "Meaningful Discretion" In Deciding How to Accomplish Results -- Beaumont-Jacques v. Farmers Group, Inc.
Determining whether a service provider is a bona fide independent contractor or a mislabeled employee will trigger a host of important legal consequences -- from tax law compliance, to expense reimbursement, to obligations to pay overtime wages. In California the Labor Code was recently amended to impose a $5,000-25,000 penalty on top of whatever remedies are otherwise recoverable by a misclassified employee.
Given the importance of the distinction, Courts and administrative agencies have not been particularly helpful in creating a clear-cut test. All too often they have treated independent contractor status like pornography -- hard to define, but they think they know it when they see it. They have thus tended to favor muddled "multi-factor" balancing tests in which the various factors will often point in different directions, producing no clear outcome. (One of the least helpful tests for example is the IRS 20-Factor balancing test).
The recent California Appellate Court decision in Beaumont-Jacques v. Farmers Group, Inc., is significant because it represents a potential counter-trend in which courts are dispensing with the multi-factor muddle and are instead honing in on the key "right to control" factor. Indeed, in Beaumont-Jacques, the appellate court upheld grant of summary judgment on the ground that the legitimacy of the plaintiff's independent contractor status could be determined as a matter of law based on the parties agreement without the need to resolve any factual disputes.
The other significant aspect of Beaumont-Jacques is that it seems to be proposing a new formulation of the control test -- i.e., whether the putative contractor had the right to exercise "meaningful discretion" in determining how to accomplish her assigned objectives. The Plaintiff was therefore found to be a bona fide independent contractor as a matter of law, where she was hired to run an insurance agency office under the following conditions:
Undisputed evidence establishes . . . that Appellant exercised meaningful discretion by, for instance: recruiting agents for and, when selected, training and motivating those agents to sell the Signatory Defendants' products; determining her own day-to-day hours, including her vacations; on most days, fixing the time for her arrival and departure at her office and elsewhere, including lunch and breaks; preparing reports for and attending meetings of the Signatory Defendants; hiring and supervising her staff, i.e., those who worked at her office, while remitting payroll taxes for them as employees; performing other administrative tasks, including resolving problems; paying for her costs such as marketing, office lease, telephone service and office supplies; deducting those costs as a business expense in her personal tax returns; and, identifying herself as self-employed in those returns. Lastly, the [parties’ agreement] specifically provided there was no employer/employee relationship.
It remains to be seen whether this "meaningful discretion" test will gain traction as the controlling standard in future decisions. If so, it would be a positive development in providing legal clarity to a traditionally fact-specific area of dispute.