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Explainer: The Independent Contractor Defense in New York

Only an employee is entitled to workers’ compensation benefits. Whether or not a claimant is an employee or an independent contractor is a factual issue for the WCB. After the facts of the relationship have been presented, the Board will decide if an employee-employer relationship exists. Appeal can be made to the Appellate Division Third Department.

A recent case helps illustrate the problem. In the case, the claimant was a cleaner who worked in a number of buildings owned by the alleged employer. The claimant was paid a fixed amount per week by check. According to the claimant, he worked for the alleged employer exclusively. Most telling, the claimant was told “where to work as well as what to do.” According to testimony, “(we) instructed and supervised the claimant, (and) would ordinarily contact him if he was required to do specific cleaning work.”

The Board found that the claimant was an employee and not an independent contractor. The Appellate Court agreed, stating “relevant considerations include the right to control the work, the method of payment, the right to discharge and the relative nature of the work; however, no single factor is dispositive.”

What factors does the Board consider in deterring whether an alleged employee is an “Independent Contractor?”

To be considered an independent contractor, and thus not an employee, the Board has stated that an individual must meet and maintain all ten of the following conditions:

  1. Obtain a Federal Employer Identification Number from the Federal Internal Revenue Service (IRS) or have filed business or self-employment income tax returns with the IRS based on work or service performed the previous calendar year;
  2. Maintain a separate business establishment from the hiring business;
  3. Perform work that is different than the primary work of the hiring business and perform work for other businesses;
  4. Operate under a specific contract, and is responsible for satisfactory performance of work and is subject to profit or loss in performing the specific work under such contract, and be in a position to succeed or fail if the business’s expenses exceed income.
  5. Obtain a liability insurance policy (and if appropriate, workers’ compensation and disability benefits insurance policies) under its own legal business name and federal employer identification number;
  6. Have recurring business liabilities and obligations;
  7. If it has business cards or advertises, the materials must publicize itself, not another entity;
  8. Provide all equipment and materials necessary to fulfill the contract;
  9. Control the time and manner in which the work is to be done; and
  10. The individual works under his/her own operating permit, contract or authority.

Although the Board has issued this ten-part test, note that the case law contains less restrictive definitions – and this list is helpful, but is not precedent.

Trucking and the Independent Contractor defense to Employment:

To be considered an independent contractor, drivers must also be transporting goods under

  • their own bill of lading and
  • their own Department of Transportation Number.

A business CANNOT require employees working for that business to obtain their own workers’ compensation insurance policy or contribute towards a workers’ compensation insurance policy. WCL§§ 31, 32, 32-a.

Factors to Consider in Finding Employment.

Whether or not an injured claimant is an employee or an independent contractor is a common dispute. The Board defines an “employee” differently than does the Federal government (for example, tax filing status is immaterial in a determination of employment.)

The Board considers the following factors in determining whether an injured claimant is an employee or was an independent contractor (and therefore not eligible for benefits):

Who has the Right to Control the claimant?

What was the degree of direction and control the alleged employer exercised over the claimant? A person or organization controlling the manner in which the work is to be performed indicates that the task is being performed by an employee. If the person doing the labor controls the time and manner in which the work is to be done this may indicate that the task is being done by an independent contractor.

Rule of thumb: If an individual is truly independent, the individual generally works under his/her own operating permit, contract or authority.

​Was the Character of the work performed by the claimant the Same as the Employer?

Work done consistent with the primary work performed by the hiring business indicates that the labor was done by an employee. Work done by a person that is different than the primary work of the hiring business may indicate the task is being performed by an independent contractor. (For example, someone paving a driveway for a driveway contractor is generally considered the employee of that paver. Conversely, a plumber hired on a one time basis to fix a broken pipe for a retail store owner is generally considered an independent contractor – the character of the plumber’s work is different than the work done by the retailer.)​

What was the Method of Payment?

Employees tend to be paid wages on an hourly, daily. weekly, or monthly basis. Similarly, employment is indicated if the hiring business withholds taxes and/or provides other employee benefits (Unemployment Insurance, health insurance, pensions, FICA, etc.) Whether the labor is paid using a W2 or 1099 Form for tax purposes does not matter in determining an employer/employee relationship for workers’ compensation purposes. A business paying cash to an individual for services usually indicates that the individual is an employee. Payment made for performance of the task as a whole may indicate the task is being done by an independent contractor.

Who Furnished the Equipment/Materials for the job?

A business providing the equipment and/or materials used by people in performing the work tends to indicate an employer-employee relationship.

Who has the right to Right to Hire/Fire at the worksite?

A business retaining the authority to hire and fire the individuals performing the work indicates an employee is performing the work. An independent contractor retains a degree of control over the time when the work is to be accomplished and is not subject to be discharged by the hiring entity because of the method he chooses to use in performing the work. Naturally, an independent contractor’s services may be terminated if the services rendered do not meet contractual requirements.

All factors may be considered and no one factor alone determines whether a person will be considered an employee under the WCL.

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