Quirky Question #220, Independent Contractors

by Dorsey & Whitney LLP
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Question:

I have always understood that California employers that misclassify workers as independent contractors face potential liability, including compensatory damages, penalties and attorney’s fees. I recently heard a news broadcast that mentioned there were cases suggesting that recent court decisions have approved the use of independent contractors in California.  Is that true and what are the takeaways?

Dorsey’s Answer:

The case you heard about was decided on July 11, 2013. In Beaumont-Jacques v. Farmers Group Ins., the appellate court affirmed summary judgment in favor of Farmers Insurance holding that a District Manager was properly classified as an independent contractor and not an employee. In so holding, the court provided clarification on the proper analysis for determining independent contractor status.

In that case, Erin Beaumont-Jacques had been a District Manager who supervised insurance agents for Farmers. She sued Farmers Insurance on various theories all of which hinged on a determination that she was a Farmers Insurance employee. In support of her position, Ms. Beaumont-Jacques pointed out that: (1) she was bound by a contract to only represent Farmers Insurance in recruiting and training sales agents; (2) she could train such agents only to sell Farmers’ insurance products; (3) the applicable contract required her to “conform” to Farmers’ “normal business practices” and Farmers’ “goals and objectives”; and (4) Farmers reserved the option to terminate her contract without cause on 30 days written notice.

In affirming the trial court’s granting of a motion for summary judgment on behalf of Farmers, the California Court of Appeal for the Second Appellate District clarified that, even where other factors may suggest an employment relationship, the fact that Ms. Beaumont-Jacques “exercised meaningful discretion with reference to her efforts” undertaken on behalf of Farmers Insurance was sufficient to establish her independent contractor status. Specifically, the Court said: “While [Farmers Insurance] had input over the quality and direction of [Beaumont-Jacques] . . ., they did not have sufficient ‘control over the details’ with respect to those efforts” to render the relationship one of employment rather an independent contractor.

Thus, the most important factor in the evaluation of whether a worker can be properly classified as an independent contractor under California law is whether the worker maintains the right to control the means by which she accomplishes her duties. Because Farmers Insurance did not control how Ms. Beaumont-Jacques performed her duties, the Court dismissed Beaumont-Jacques’ claims which were premised on her employee status including breach of contract, breach of the implied covenant and sex discrimination.

Most California decisions have not been as favorable to employers. California employers are cautioned to carefully review matters pertaining to independent contractors with legal counsel.

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