When trying to answer the question of whether an individual providing services is an employee or an independent contractor, there is no clear answer, even when you have a written agreement that clearly states that the individual is an independent contractor. The Oregon Court of Appeals recently held that where you have such an agreement, the court will still look to see if the actual facts support whether an independent contractor or employment relationship exists. Chelius v. Employment Dept., case no. A148900. This case involves an appeal of an employment department determination that a bookkeeper providing services to an estate was an employee of the estate, not an independent contractor as stated in her agreement with the estate.
The bookkeeper was the full time employee of Alan James’ for a number of years before he passed away in 2005. The personal representative of his estate continued the bookkeeper’s employment after Mr. James’ death to assist the personal representative with the administration of Mr. James’ estate and 16 testamentary trusts that he set up in his will. She was extensively involved in the estate’s day to day administration, worked with beneficiaries and trustees as a liaison, assisted in gathering information needed for inventories and accountings filed in the probate proceedings, and gathered information for an IRS case. She worked out of an estate office and utilized estate computers and other property in providing these services.
This employment relationship lasted for quite some time. However, towards the end of 2009 the estate was being wound down and the bookkeeper’s hours were severely cut. The estate closed its office and the bookkeeper began working part time from her house. The estate provided her with office furniture, a computer, an external hard drive and battery, and a printer to be used in providing services to the estate. These items were set up in the bookkeeper’s dining room at her house. She testified that the dining room was mainly used for work and not eating.
At around this same time, the bookkeeper and the estate entered into an agreement titled “Independent Contractor Agreement”. The agreement was detailed and specifically provided that the bookkeeper would “provide all services under this agreement, as an independent contractor for all purposes” and that the estate’s representative-trustees would not “have the right to direct or control the means or manner in which she provides these services * * *.”
Eventually Employment Department employees noticed that the estate continued to pay the bookkeeper but had not been paying unemployment insurance taxes. The department’s investigator concluded that the bookkeeper was actually an employee and not an independent contractor because the estate had the right to control her and assessed the estate a tax bill in the amount of $379.16.
The estate challenged that assessment. The administrative law judge agreed with the assessment finding that she was an employee of the estate since the estate had the right to control and direct the bookkeeper’s work performance, specifically, the estate provided the means by which she could provide the services and it had the right to control the manner by which she performed her services.
On appeal the estate argued that the independent contractor agreement clearly stated that the estate had no right to direct and control the employee; therefore, she was not an employee. The court disagreed finding that if this were the case then every employer could avoid paying employment insurance tax and other assessments by simply including this language in every agreement with an employee. Although such language will have a bearing on determining whether an employee relationship or independent contractor relationship exists it is not binding on a court or the department. In other words, the court acknowledges that an agreement exists but it’s going to look at the actual relationship to determine whether an employee-employer relationship exists.
Such a determination is fact specific and when applying the right to control test, the court will look at the means of providing services and the manner of providing services. The court found that the estate provided the means for the bookkeeper to provide her services to the estate, such as providing her with the desk, filing cabinet and computer equipment to furnish her home office and reimbursing her for office supplies, cell phone, postage, mileage, etcetera. The agreement also required that she return the desk, filing cabinet and computer equipment to the estate upon termination of the agreement. Moreover, the estate controlled where she could work from and specified how the room in which she worked could be used – “primarily for the business of providing bookkeeping services” to the estate.
Finally, she continued to perform the same services that she had provided the estate while a full-time employee and did not work for any other individual or entity while providing services to the estate.
This case emphasizes the risks of trying to reclassify an existing employee as an independent contractor. If you’re going to try to reclassify the employee as an independent contractor you need to make sure that you give up the controls and truly make the employee independent. This step can be difficult but the court in Chelius emphasizes the importance of letting go.
© 8/22/2013 Kevin J. Tillson of Hunt & Associates, P.C. All rights reserved.