Are the People Working for You "Employees" or "Independent Contractors"?
Ruling Reminds Us that Sometimes the Answer to that Question is an Unwelcome Surprise.
A recent opinion by the North Carolina Court of Appeals demonstrates that businesses may be held vicariously liable for the tortious (wrongful) acts of individuals whom the employer treats as “independent contractors.”
McKenzie v. Charlton (2018) was a “wrongful death” action involving a pedestrian who was killed after being hit by a car driven by the defendant (Charlton) ‒ a “paraprofessional caregiver” ‒ employed by the defendant business (“RFI”) ‒ a provider of personal care services to disabled individuals.
The appellate court was asked to rule on whether RFI was “vicariously” (or indirectly) liable and financially responsible for the pedestrian’s death under the legal doctrine of “respondeat superior.” That’s an old Latin term ‒ literally “let the master respond” ‒ for a legal doctrine that imposes liability upon an employer for the tortious acts of its employees when they commit those acts while acting within the scope of their employment.
The facts in McKenzie present a near classic example of how this doctrine frequently comes into play: a car accident caused by a company employee who is driving as part of his or her job at the time of the accident. Under the respondeat superior doctrine, the company is held liable for the employee’s negligence because that employee was working at the time of the collision. What sets McKenzie apart from the classic example is that the parties disagreed as to whether Charlton was an “employee” of the company.
The plaintiff in the McKenzie case, the deceased pedestrian’s estate, predictably argued that RFI was responsible for Charlton’s alleged negligence because Charlton was an “employee” of the company acting within the scope of his employment at the time of the collision.
RFI, on the other hand, argued that Charlton was an “independent contractor” and, as such, RFI was not responsible for Charlton’s conduct under the respondeat superior doctrine. Among other things, RFI pointed out that it had a written contract with Charlton that expressly stated that he was an “independent contractor” rather than an employee. The trial court agreed with RFI’s analysis and dismissed the Plaintiff’s claim against it, precipitating the appeal.
The Court of Appeals reversed, coming to the conclusion that Charlton was in fact RFI’s “employee,” rendering RFI potentially liable for Charlton’s alleged negligence in the accident. In reaching this conclusion, the Court analyzed eight factors set out in a case handed down by the North Carolina Supreme Court in the 1944 case of Hayes v. Bd. Of Trustees for Elon College. Under Hayes, to sort out whether an agent is an “employee” or an “independent contractor, one has to look at whether the agent:
(1) is engaged in an independent business, calling, or occupation;
(2) is to have the independent use of his special skill, knowledge, or training in the execution of the work;
(3) is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis;
(4) is not subject to discharge because he adopts one method of doing the work rather than another;
(5) is not in the regular employ of the other contracting party;
(6) is free to use such assistants as he may think proper;
(7) has full control over such assistants; and
(8) selects his own time.
The “key factor,” according to the court, is “control” ‒ that is, whether the business has retained the right to supervise and control the performance of the agent’s work. Relying on Hayes and other precedents, the appellate court decided that Charlton was an “employee” because RFI dictated many of the terms of Charlton’s duties, Charlton worked full-time for RFI (and, in fact, could not work for other agencies as long as he was serving RFI’s clients), he was paid by the hour rather than by the job, and the company even set a speed limit on Charlton’s driving when a client was in the car. While noting that other factors weighed in favor of establishing “independent contractor” status, in weighing those factors against each other, the Court concluded the “weight” of the evidence spelled out an employer-employee relationship, no matter that the contract stated just the opposite.
No question about it: McKenzie is a case worth studying for employers who run staffing-type agencies, particularly so in the personal care services industry. But it also serves to remind employers generally, that despite having arrived in the “gig” economy where the use of “independent contractors” is often more appealing than the burden of housing “employees,” the eight-factor test laid down 75 years ago in the Hayes case remains valid today.