Winona contracted with XtremeCast, a broadcast media firm, to cohost an Internet-streaming sports program. Winona and XtremeCast signed a new contract for each episode. In each contract, Winona agreed to work a certain number of days for a certain salary. Each contract was different in this regard. Further, during each broadcast, Winona was free to improvise her performance. Was Winona an independent contractor? Why or Why not?
Determination of Employee Status
The courts are frequently asked to determine whether a particular worker is an employee or an independent contractor. How a court decides this issue can have a significant effect on the rights and liabilities of the parties.
Criteria Used by the Courts
In deciding whether a worker is categorized as an employee or an independent contractor, courts often consider the following questions:
How much control does the employer exercise over the details of the work? If the employer exercises considerable control over the details of the work and the day-to-day activities of the worker, this indicates employee status. This is perhaps the most important factor weighed by the courts in determining employee status.
Is the worker engaged in an occupation or business distinct from that of the employer? If so, this points to independent-contractor, not employee, status.
Is the work usually done under the employer’s direction or by a specialist without supervision? If the work is normally done under the employer’s direction, this indicates employee status.
Does the employer supply the tools at the place of work? If so, this indicates employee status.
For how long is the person employed? If the person is employed for a long period of time, this indicates employee status.
What is the method of payment—by time period or at the completion of the job? Payment by time period, such as once every two weeks or once a month, indicates employee status.
What degree of skill is required of the worker? If a great degree of skill is required, this may indicate that the person is an independent contractor hired for a specialized job and not an employee.
Workers sometimes benefit from having employee status. For instance, employers are required to pay certain taxes, such as Social Security and unemployment taxes, for employees but not for independent contractors. In addition, federal statutes governing employment discrimination apply only in employer-employee relationships.
For the same reasons, employers may benefit from identifying those working for them as independent contractors. In addition, an employer normally is not liable for the actions of an independent contractor.
Case in Point 19.1
AAA North Jersey, Inc., contracted with Five Star Auto Service to perform towing and auto repair services for AAA. One night, Terence Pershad, a Five Star tow-truck driver, responded to an AAA call for assistance by the driver of a car involved in an accident. While at the scene, Pershad got into a fight with Nicholas Coker, a passenger in the disabled car, and assaulted him with a knife.
Coker filed a suit against Pershad, Five Star, and AAA, alleging that AAA was responsible for Pershad’s tortious conduct. The court ruled that Pershad was Five Star’s employee and that Five Star was an independent contractor, not AAA’s employee. An appellate court affirmed the ruling. Because AAA did not control Five Star’s work, it was not liable for a tort committed by Five Star’s employee.Footnote
Criteria Used by the IRS
The Internal Revenue Service (IRS) has established its own criteria for determining whether a worker is an independent contractor or an employee. The most important factor is the degree of control the business exercises over the worker.
The IRS tends to closely scrutinize a firm’s classification of its workers because, as mentioned, employers can avoid certain tax liabilities by hiring independent contractors instead of employees. Even when a firm has classified a worker as an independent contractor, the IRS may decide that the worker is actually an employee. If the IRS decides that an employee is misclassified, the employer will be responsible for paying any applicable Social Security, withholding, and unemployment taxes due for that employee.
Employee Status and “Works for Hire”
Ordinarily, a person who creates a copyrighted work is the owner of it—unless it is a “work for hire.” Under the Copyright Act, any copyrighted work created by an employee within the scope of her or his employment at the request of the employer is a “work for hire.” The employer owns the copyright to the work.
In contrast, when an employer hires an independent contractor—such as a freelance artist, writer, or computer programmer—the independent contractor normally owns the copyright. An exception is made if the parties agree in writing that the work is a “work for hire” and the work falls into one of nine specific categories, including audiovisual works, collective works (such as magazines), motion pictures, textbooks, tests, and translations.
Case in Point 19.2
As a freelance contractor, Brian Cooley created two sculptures of dinosaur eggs for the National Geographic Society for use in connection with an article in its magazine, National Geographic. Cooley spent hundreds of hours researching, designing, and constructing the sculptures. National Geographic hired Louis Psihoyos to photograph Cooley’s sculptures for the article. Cooley and Psihoyos had separate contracts with National Geographic in which each transferred the copyrights in their works to National Geographic for a limited time.
The rights to the works were returned to the artists at different times after publication. Psihoyos then began licensing his photographs of Cooley’s sculptures to third parties in return for royalties. He digitized the photographs and licensed them to various online stock photography companies, and they appeared in several books published by Penguin Group. Cooley sued Psihoyos for copyright infringement.
Psihoyos argued that he owned the photos and could license them however he saw fit, but a federal district court disagreed. The court found that Psihoyos did not have an unrestricted right to use and license the photos. When Psihoyos reproduced an image of a Cooley sculpture, he reproduced the sculpture, which infringed on Cooley’s copyright. Therefore, the court granted a summary judgment to Cooley.Footnote
Formation of the Agency Relationship
Agency relationships normally are consensual. They come about by voluntary consent and agreement between the parties. Normally, the agreement need not be in writing, and consideration is not required.
A person must have contractual capacity to be a principal.Footnote The idea is that those who cannot legally enter into contracts directly should not be allowed to do so indirectly through an agent. Any person can be an agent, however, regardless of whether he or she has the capacity to contract (including minors).
An agency relationship can be created for any legal purpose. An agency relationship created for a purpose that is illegal or contrary to public policy is unenforceable.
Archer (as principal) contracts with Burke (as agent) to sell illegal narcotics. The agency relationship is unenforceable because selling illegal narcotics is a felony and is contrary to public policy. If Burke sells the narcotics and keeps the profits, Archer cannot sue to enforce the agency agreement.
An agency relationship can arise in four ways: by agreement of the parties, by ratification, by estoppel, and by operation of law.
Is the worker engaged in an occupation or business distinct from that of the employer?
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