A couple of months ago, Barbara Magnan, a human resources manager in Ireland, and a member of my LinkedIn group, sent me the following question:

I am currently completing a dissertation on the ways that various jurisdictions courts classify employment

It seems wrong that in 2009, people in Ireland should have to forego basic employment protection due to the inadequacies of the courts tests in to distinguish between a contract for service (independent contractor) and contract of service (employee). The question as to a person’s status of employment is becoming increasingly important in the recession as more people are being made redundant and an individual is only entitled to redundancy payment and other protection if they were employed under a contract of service. Judges in Ireland currently use 3 outdated tests (control test, integration test and mixed test).

In my dissertation I would like to examine whether there is a better way to determine if it is a contract of employment with a stricter approach that will take the circumstances into account. It is clear that the current method of classifying employment in Ireland leaves much to be desired due to the amount of uncertainty.

Would you be able to point me in the direction of where I would find information on how the courts deal with this matter in the United States?

Thank you for all of your help

Kind regards,
Barbara Mangan

My response was:

Interesting thesis that your working on. Timely and always relevant.

On January 1, 2008, Illinois (the U.S. state where I live/where Chicago is located) implemented the “Employee Classification Act” This law defines independent contractor and employee in the construction, landscaping and hauling industries. Various labor unions in Illinois were upset that many employers were classifying their employees as independent contractors in order to avoid paying payroll taxes and overtime and to avoid joining unions.

On the federal level, the U.S. Department of Labor discusses this in the “Fair Labor Standards Act,” which regulates who is exempt from overtime, and who an employee or supervisor is for purposes of the overtime exemption. More specifically, most supervisors can be paid a salary, and are therefore exempt from overtime. Also, the Internal Revenue Service goes into great detail via the U.S. tax code and regulations regarding who is an employee and independent contractor.

Also, many states define employee and independent contractor for purposes of payroll taxes such as unemployment compensation (I think that means the same as “redundancy payments”).

In general, U.S. courts and governments consider degree of control over the employee or contractor–ability to set hours, use of tools/implements, ability to work other jobs for other companies, structure of the business (both the principal and the contractor), how the employee or contractor portrays themselves to the public, and whether the work assignment is of a definite duration or indefinite.

All-in-all it’s pretty complicated because their are various state and federal laws at play here, and although there’s a great deal of overlap, it’s the subtle differences that cause confusion and get people in trouble.

I hope that this helps you and feel free to followup with additional questions, etc.

Additional Respone:  In my opinion, the U.S. legal system and government are years behind the business community regarding the changes in the employer/employee/contractor relationship.  This seems to apply to state and local governments more than our federal government, which tried to address this in recent Fair Labor Standards Act amendments (close but still “no cigar”).

Government and courts don’t seem to understand highly specialized technology and information professionals, how many of them wish to maintain an independent contractor relationship, and how they do in fact fit many of our varied definitions of an independent contractor.  Our laws and regulations indicate little comprehension of how businesses utilize highly specialized professionals on projects such as most anything in nanotechnology, WiMax, server technology, “green” technology, and on and on.

For example, I’m dealing with a matter right now where it’s clear that a regulatory agency has so far shown no understanding (or motivation to understand) engineering and technology professionals in the WiMax, cellular and server technology fields. Consequently, instead of taking the time to understand how this contractor’s duties do in fact fit the agency’s definition of an inedependent contractor, they’ve arbitrarly designated this person an employee and assessed taxes and penalties to the business.  This matter is currently on appeal.