Employee or independent contractor? How the effects of classifications impact employer liability.

• Author: Mellow, Mary Anne

RECENTLY, awareness has begun to grow about the reclassification of workers as employees or independent contracts across all industries. (1) This heightened awareness is the result of increased enforcement actions and challenges by various governmental entities to the classification of workers as contractors. (2) For example, federal "worker misclassification" legislation has been proposed, (3) and the Internal Revenue Service has launched an initiative focusing on more aggressive audits of companies. (4) Classifying workers as employees or independent contractors can be extremely complex and vital to your case. The stakes are extremely high because consequences can be staggering. (5)

A number of states have also increased enforcement. In California, the Port of Los Angeles and Port of Long Beach implemented mandatory "concession agreements" for drayage trucking services at both ports. (6) The Port of Los Angeles provision required motor carriers providing drayage services to transition from using independent contractors to using 100-percent employees within a five-year period, beginning with "at least a 20% transition" to employees by the end of the fourth quarter of 2009. (7) In Maryland, the legislature enacted a Workplace Fraud Act in 2009 effectively creating a presumption that all workers are employees. (8) That Act authorized significant potential penalties to be imposed against businesses for "knowing failure" to properly classify individuals as employees. (9) The importance of these issues also extends to civil litigation. (10)

The long established doctrine of respondent superior or imputed negligence provides employers can be held vicariously liable in tort law for the negligence of their employees under various circumstances. (11) The doctrine is premised on the notion one who is in a position to exercise control over the performance of a service must exercise it or bear the loss. (12) An employee is usually regarded as a member of the employer's staff and subject to the control of the employer. (13) The employee's tortious acts committed within the course and the scope of his employment resulting in liability are, therefore, imputed to the employer due to the working relationship existing between the parties. (14)

Generally, a business that contracts with an independent contractor is immune from vicarious liability for damages to a third party for the negligent acts of the contractor committed during the performance of the agreement. (15) An independent contractor is commonly defined as one who contracts to perform a certain task or duty independently according to their own means and methods without being subject to the control of the hiring party except as to the ultimate goal or result. (16) Historically in circumstances where this level of independence existed, the imposition of liability on the hiring entity who only exercised limited control over the method in which the contracted work was performed resulted in inequity. (17) As stated in Prosser on Torts, the work is to be "regarded as the contractor's own enterprise, and he, rather than the employer, is the proper party to be charged with the responsibility for preventing the risk, and administering and distributing against it." (18) Therefore, the distinction between an "employee" and an "independent contractor" can become a critical liability issue to the hiring entity. (19)

This article will discuss the distinction between employees, independent contractors, and borrowed servants for the purpose of imputing tort liability to employers. Specifically, it will focus on the distinction between these classifications under the purview of two representative states that border one another--Missouri and Illinois. In this context, we provide a series of similar automobile collision cases from Missouri and Illinois depicting common employee-independent contractor situations. As this article shows, similar facts and circumstances associated with the employee-employer relationship may lead to surprisingly different outcomes.

1. Employee, Borrowed Servant, or Independent Contractor?

   1. Traditional Employer Liability- Respondeat Superior

   In Horner v. FedEx Ground, Plaintiff was injured in a collision between his car and a semi-truck-tractor driven by Scott Allen ("Allen") an employee of M&C Unlimited LLC ("M&C"). (20) At the time of the accident, M&C was under an exclusive lease agreement to provide trucking services to FedEx Ground Package System, Inc. ("FedEx"), an interstate motor carrier certified by the U.S. Department of Transportation ("DOT")." (21) The truck-tractor bore FedEx's DOT registration number and logo when it collided with Plaintiff. (22) Plaintiff brought a vicarious liability action against FedEx based on respondent superior principles. (23) The trial court entered judgment for Plaintiff. (24) FedEx appealed claiming the trial court's judgment should be reversed on the ground that the trial court erred in its determination FedEx was vicariously liable for Allen's operation of the truck-trailer because Allen was not acting with the scope and course of his employment or for the benefit of FedEx at the time of the collision. (25) The Court of Appeals affirmed. (26)

   The facts determinative of the agency issue were undisputed. (27) As a preliminary matter, M&C and FedEx did not dispute the validity of FedEx's lease agreement with M&C, nor that the lease complied with DOT requirements. (28) As required by the DOT, the lease agreement specifically provided FedEx shall be considered to have such exclusive possession, use, and control of the equipment required by all applicable regulations. (29) Additionally, M&C's hauling operations were limited exclusively to servicing FedEx's business interests pursuant to the lease. (30) In fact, all of the truck-tractors owned by M&C were leased to FedEx, as M&C had hauled exclusively for FedEx since M&C's incorporation. (31) Pursuant to the terms of the lease, responsibility for maintenance of the leased equipment was delegated by FedEx to M&C, and M&C was required to provide equipment maintenance records on a monthly basis to FedEx which was important to ensure the leased trucktractors were functioning properly and in safe working condition and in compliance with FedEx's regulatory obligations. (32)

   On the day of the accident, Allen was dropped off by his wife at a FedEx subterminal located in Brookfield, Missouri, where the truck-tractor had undergone maintenance work. (33) Allen was instructed to drive the truck-tractor to a FedEx subterminal located in Shawnee, Kansas where, upon his arrival, he was either to pick up a load for transport, or leave the truck-tractor at the FedEx Shawnee hub and return to his home. (34) Furthermore, when the collision occurred, the trucktractor bore FedEx's logo and Interstate Commerce Commission ("ICC") registration number. (33)

   Applying respondeat superior principles to the foregoing facts, the Court of Appeals affirmed the trial court's ruling FedEx was vicariously liable for the actions of Allen and thus negligent. (36) Under these facts, the court found that FedEx Ground exercised substantial control over Allen's operations, and in Missouri there was further an irrebuttable presumption of vicarious liability for interstate transportation providers that bearing the logo of an employer.

   In contrast, in Lee v. Pulitzer Publishing, defendant Pulitzer Publishing Company ("Pulitzer") published, marketed, sold, and distributed a newspaper. (3) As part of Pulitzer's marketing, sales, and distribution efforts, Pulitzer had established a network of carrier routes, each of which encompassed an exclusive geographic territory. (38) Some carrier routes were owned and operated by Pulitzer while others were owned and operated by individuals Pulitzer designated as independent contractors pursuant to a Home Delivery Service Agreement (the "Agreement"). (39) The Agreement stated carriers were self-employed independent contractors and not employees of Pulitzer, had the right to choose their own employees and engage such other subcontractors as the carrier may deem necessary, and the carriers exercised sole and exclusive control and supervision over all subcontractors. (40) In addition, the Agreement stated carriers were responsible for the costs of conducting and operating their businesses, including the provision of office space, transportation vehicles, equipment, and other supplies, and were responsible for paying all payroll expenses for their employees and must file their tax returns on the basis of their status as independent contractors. (41)

   In December 1988, David Carron ("Carron") began delivering newspapers on Route 261 for Pulitzer after purchasing it from a third party. (42) In May 1991, Carron executed a form of the Agreement with Pulitzer and continued to deliver papers as he had before executing the Agreement. (43) In October 1992, Carron struck and severely injured a jogger while delivering papers along Route 261. (44) Shortly thereafter, Pulitzer chose to terminate its agreement with Carron. (45) Upon Pulitzer's termination of the Agreement, Carron entered into a contract to sell Route 261 to Rommel Medrano ("Medrano"). (46) No money changed hands with respect to this transaction, and Carron remained the active operator of the route. (47) Thereafter, Carron hired Jason Meriwether ("Meriwether") to drive the route. (48)

   Under the terms of the Agreement, Pulitzer had to receive notice of the sale between Carron and Medrano, together with all information regarding the purchaser. (49) While Pulitzer was required to approve the sale, it did not have the right to select a purchaser nor did it have the right to select the subcontractor the purchaser could use in carrying out its responsibilities under the Agreement. (50) Medrano entered into a new Agreement with Pulitzer in August 1993. (51) Medrano and Carron were careful to give Pulitzer the impression...