In last month’s article, we described the recent proliferation of “misclassification” lawsuits. In these cases, workers who were classified as “independent contractors” claim that they are really “employees” within the meaning of state and federal labor laws. At stake are claims for minimum wages and overtime, civil penalties, liquidated damages, attorney’s fees and more – much more. Claims of this type can easily run into the hundreds of thousands of dollars, even if only a few workers are involved.

Because this is a high-stakes game, it pays to know the rules. What exactly does the law require in order to prove that a worker is a genuine “independent contractor” instead of an “employee?”

As a general rule, “independent contractors” are private businesses that bid for work and are evaluated on the results of their work rather than upon day-to-day performance. Although different courts employ different tests, the following factors are always important:

• How much control does the employer have over the worker on a day-to-day basis?
• Can the worker perform the work at times and days of his own choosing?
• Must the worker make a substantial investment in order to set up his business?
• Does the worker employ and pay his own assistants?
• Can the worker realize a profit or loss?
• Is the price to be paid for the work negotiable?
• Can the worker offer his services to others?
• Does the employer provide any benefits other than the agreed-upon price of the work?
• Is the relationship permanent or on a job-to-job basis?
• Does the employer use employees to do the same type of work to be performed by the “independent contractor?”
• Is the work to be performed essential (or “integral”) to the employer’s business?
• Does the work involve a special skill?
• Does the worker have to display initiative, judgment or foresight in order to succeed?
• Is there formal documentation such as contracts and invoices?

The presence or absence of any one of these factors is generally not a good predictor of the outcome. Courts and government agencies use these factors to determine the “economic reality” of the relationship. The more a worker looks like a stand-alone businessman, the more likely he will be found to be an “independent contractor.” If the worker is simply a thinly-disguised employee, an “independent contractor” status will be disallowed. The names or titles the company uses to describe the worker are irrelevant.

Because the stakes in this particular game are so high, it is absolutely essential to consult with experienced labor counsel who is familiar with local court rulings on this issue. Playing this game wrong can not only be expensive to a company, it can be detrimental.

Perry Heidecker is senior counsel for Milman Labuda Law Group PLLC, Lake Success, N.Y. The firm is a full-service Employment Law practice focused on counseling, preventive advice and training, policy and procedure design, representation before administrative agencies, litigation, and appeals.