Employer v. Independent Contractor
This assignment requires you to analyze a set of hypothetical facts under a set of legal rules and reach a conclusion that you can defend.
The exercise aims to present you with a set of facts that you might reasonably encounter as an HR professional, and its objective is to help you develop the ability to critically analyze these facts and persuade a reasonable observer that you have reached the correct conclusion.
RELEVANT COURSE OBJECTIVES:
- Identify and define relevant legal concepts and explain their applications in a realistic, hypothetical fact pattern.
- Apply critical thinking, analytic, and communication skills through case analysis, research, problem solving,
- Develop applicable skills and knowledge in the relevant cross-curricular initiatives, including effective writing and information literacy
TOTAL POSSIBLE POINTS FOR RAW SCORE: 100
The Facts
Make-a-Bed is a furniture manufacturer and distributor with plants in Maryland, Pennsylvania and Delaware. The company's president believed the company could save money by streamlining the manufacturing process and consolidating facilities. To accomplish this, the company advertised through regular want ads for a consultant/industrial engineer to oversee this process.
John Engineer applied for the job; his resume indicated that he ran his own consulting firm as a solo practitioner and had consulted on this type of project before.
The president decided that it would be better to hire John as an independent contractor than as an employee, as originally planned, because John was wrapping up some projects for other clients and couldn't begin full-time work right away.
John was told that he would be expected to study the employer business and make recommendations as to how to accomplish the consolidation within one year. He was required to report regularly to the president on his work (every month), but was responsible for scheduling his own meetings and travel. It was agreed that John would budget approximately 20 hours of his time every week to the project and would be paid on an hourly basis, upon submission of an invoice each month.
John's other business dried up and after a few months, he was devoting all his time to Make-a-Bed, though he continued to bill only 20 hours a week. John travelled frequently to the three factories, but was not reimbursed for his travel expenses.
After one year had passed, John had not made any formal recommendations about how to accomplish the consolidation project wanted by the business and was replaced by an outside professional consulting agency.
John filed a claim for unemployment benefits showing Make-a-Bed as the last employer. The company supplied a 1099 form to the unemployment office showing that John had been paid as a contractor, not an employee. The claim was denied, but John appealed and a hearing was held.
The Hearing
At the hearing, the company's new HR director presented the president's written statement along with his handwritten notes (but no contract) regarding the terms of the agreement with John to act as an independent contractor.
John testified that the terms presented in the handwritten notes were not familiar to him and he did not recall this discussion with the company president. Through testimony, it was shown that John was only able to complete work during normal business hours due to needing access to the business computer system and technical manuals.
John testified that he was also expected to notify HR when he would not be in for any reason and if he was going to arrive late or leave early. John had an office at the company, but also worked from home occasionally. While it was true that John submitted monthly bills for services, the bills were sometimes late, but a check was still issued on a normal payroll cycle from the business payroll account.
You explained that John was only allowed to perform services during normal business hours for security reasons and that the three factories were only open certain hours. There was no external way for any person to access the business computer system, so no employee "tele-commuted" and everyone came into the office every day.
You explained that a clerk had set up payments to the claimant in the employer payroll system in error. The payroll system was programmed to issue a check on certain intervals unless overridden. No one at the business had been aware of this until the hearing.
You testified that you didn't think John had been required to notify HR about taking time off and that HR merely thought that John was being courteous by notifying them of time off, but had not expected or required it. You also informed the hearing judge that John did not receive any benefits such as vacation pay, or health or retirement benefits.
Imagine that you are the Unemployment Claims Hearing Office and that you must decide whether John should be characterized as an independent contractor or an employee. Draft an opinion stating your conclusion, and your reasoning for reaching this conclusion.
In formulating your Opinion:
- Summary: Provide a 1-2 paragraph summary of the facts of the case.
- Analysis: Find IRS Publication 15A on the Internet, review Section Two of that Publication and utilize the IRS 11-factor (common-law) test in conducting your analysis.
- Conclusion: State whether John is an independent contractor or an employee and the reasons for your conclusion.