Employees vs. Independent Contractors (Vicarious Liability)

Under the general principles of respondeat superior, employers are vicariously liable for the torts of their employees but not the torts of independent contractors.  The key difference between employees and independnet contractors is that the employer exercises control over the details, methods, and manner of employees’ work but not that of independent contractors.

Reference Desk

Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522 (2014):

While the extent of the hirer’s right to control the work is the foremost consideration in assessing whether a common law employer-employee relationship exists, our precedents also recognize a range of secondary indicia drawn from the Second and Third Restatements of Agency that may in a given case evince an employment relationship.  Courts may consider (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of paymnet, whether by the time or by the job; (g) whether or not the work is part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.

National Labor Relations Board v. Phoenix Mut. L. Ins. Co., 167 F.2d 983 (7th Cir. 1948):

[I]t was incumbent upon the Board in the first instance to determine whether the insurance salesmen involved were employees or independent contractors, and this court likewise must determine that issue on the Board’s petition for enforcement of its order.

A similar question was considered by this court in Williams v. United States, 7 Cir., 126 F.2d 129, 132, certiorari denied, 317 U.S. 655, 63 S.Ct. 52, 87 L.Ed. 527,where the rule was stated that each case must depend upon its own facts, and that the test most usually employed for determining the distinction between an independent contractor and an employee is found in the nature and the amount of control reserved by the person for whom the work is done. This court there pointed out that the employer-employee relationship exists when the person for whom the work is done has the right to control and direct the work, not only as to the result accomplished by the work, but also as to the details and means by which that result is accomplished, and that it is the right and not the exercise of control which is the determining element. A number of tests were pointed out, such as the right to hire and discharge persons doing the work, the method and determination of the amount of the payment to the workmen, whether the person doing the work is engaged in an independent business or enterprise, whether he stands to make a profit on the work of those working under him, the question of which party furnishes the tools or materials with which the work is done, and who has control of the premises where the work is done. In addition to the tests there mentioned, consideration must be given to other factors, such as whether the relationship is of a permanent character, the skill required in the particular occupation, and who designates the place where the work is to be performed.

In the case at bar the respondent provides headquarters for its salesmen and furnishes each of them with office space, a desk, a telephone, stenographic service, stationery, postage, filing cabinets, sales supplies, and business cards. It also pays for the indemnity bonds and license fees which the State of Illinois requires of each insurance agent. Each salesman is required to devote his full time to respondent’s business and may not assign his contract, nor employ anyone to work under him. Respondent requires each salesman to produce a specified minimum of new business each year and if he fails to do so he is subject to discharge. The salesmen are engaged in soliciting life and endowment insurance within an assigned territory and usually collect the first premium. Respondent selects its agents from among those persons who make written applications for these positions, and after having a personal interview. To be selected as an insurance salesman, it is not necessary for the applicants to have previous experience at selling insurance. After an applicant is selected and after signing an agency contract, each is given an intensive training by respondent’s supervisory staff. He spends the first two weeks of his employment in respondent’s offices receiving instructions from the office manager and other supervisory personnel, and is taught the use of the company’s various forms and records, and initiated in the sales approach. After completing this training period the salesmen are permitted to take field trips. During their first interviews they usually are accompanied by respondent’s office manager or other supervisor, but as they gain experience they are subjected to less field supervision. During the first two years of their service they are known as junior salesmen and as such may operate under a financing contract rather than a regular commission contract. Under such a contract the salesman may borrow $100.00 up to as much as $300.00 a month. These loans are in the nature of advances on commissions which the salesman is expected to earn. After they become senior salesmen they no longer are entitled to borrow under a financing contract but receive other benefits or inducements 987*987which encourage them to remain permanently with the respondent.

The evidence before the Board discloses that respondent keeps a close check on the details of its salesmen’s work and exercises a large measure of control over them. Each salesman must furnish management regularly with an accurate daily record of interviews and sales, must show for each day of the week the number of hours worked in the field, the number of interviews had, the number of new prospects interviewed and many other similar details. Respondent furnishes each salesman with certain sales services, such as circularizing by mail, without cost to the salesman, and supplying the salesman with advertising specialties and miscellaneous material.

It is also persuasive evidence of the salesmen’s status as employees that respondent maintains a plan for the retirement and pensioning of its salesmen. This retirement and pension plan is noncontributory, although they do have the privilege of increasing their retirement income through voluntary participation. Respondent has also made available for its salesmen special pensions providing income for total and permanent disability.

Respondent regarded its salesmen as being in a somewhat different class than ordinary insurance salesmen. In its pamphlet, “Selecting Salesmen,” it said:

“* * * It (respondent) then decided to take the most forward steps known to Life Insurance. These involved the cancellation of all part-time contracts and the employment thereafter of only representatives who would devote their full business time to the Phœnix. * * * the Phœnix is still the only company on the American continent which employs a small, compact, and exclusively full-time sales representation.”

In another pamphlet it referred to the fact that the hiring of salesmen had been put upon a scientific basis.

It is thus apparent from the undisputed facts before the Board that respondent’s salesmen, by all applicable recognized standards, fall into the class of employees rather than independent contractors, and we so hold.

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