What to do about an accident and collecting my earnings as an independent agent?

For a variety of reasons, small business owners try to retain independent contractors when they themselves can no longer handle the workload of their growing business.

Generally, employers are not liable for the torts of independent contractors.  Another advantage is that independent contractors have to take care of their own taxes – all you have to do is pay them, and they are responsible to do the rest.  You don’t even have to pay them overtime or the going minimum wage because you do not have to keep track of their hours.  Also, ending your relationship with an independent contractor is generally easier because they cannot file wrongful termination claims against you, nor can they file for unemployment or workers’ compensation.

However, just because you think that you hired an independent contractor does not mean that you did.  Small business owners without any legal or human-resource background (which is probably most of them) often misclassify the status of individuals working for them.

Ohio law defines an independent contractor as “‘one who carries on an independent business, in the course of which he undertakes to accomplish some result or do some piece of work, for another, being left at liberty in general to choose his own means and methods, and being responsible to his employer only for the results which he has undertaken to bring about.’” Abrams. v. Toledo Dealers Assn., 145 Ohio App.3d 187, 191 (6th Dist. 2001), quoting Post Publishing Co. v. Schickling, 22 Ohio App.318, 322 (1st Dist.  1926). The Ohio Supreme Court has set out the following test to distinguish an employer/employee relationship from that of an independent contractor: 

Did the employer retain control of, or the right to control, the mode and manner of doing the work contracted for? If he did, the relationship is that of a  principal and agent or master and servant [i.e. employee/employer]. If he did not but is interested merely in the ultimate result accomplished, the relationship is that of employer and independent contractor.

Councell v. Douglass, 163 Ohio St. 292, syllabus ¶1 (1955).

In determining this control and whether someone is an independent contractor, a court will consider the following factors:

[1] who controls the details and quality of work;

[2]  who controls the hours worked;

[3] who selects the materials, tools and personnel used;

[4] who selects the routes traveled;

[5] the length of employment

[6] the type of business, the method of payment; and

[7] any pertinent agreements or contracts.

Meek v. Tom Sexton & Assoc., Inc., 2005-Ohio-5188, ¶12 (9th Dist.).

As reported in the New York Times, in 2010 the U.S. Department of Labor estimated that 30 percent of companies nationwide misclassified employees as independent contractors. This estimate includes sophisticated corporations and even medium-to-small businesses that have the assistance of legal counsel.  If a study were conducted on just small businesses that are looking to hire their first round of help, presumably without the advantage of legal counsel, the percentage would very likely be much higher.

Not surprisingly, the federal government and the states are taking action to recover taxes that were not paid as a result of this misclassification. The Ohio Attorney General estimated in 2010 that 92,500 workers were misclassified in Ohio, which cost the state up to $35 million dollars a year in unemployment insurance taxes, up to $103 million in workers’ compensation premiums, and up to $223 million in lost income taxes. Id.  Especially granted the fiscal circumstances of the federal and local governments, there is no doubt that government agencies will become even more concerned with finding misclassified workers and suing companies for lost revenue.

So, how do you avoid this?  In most situations, we advise that you enter into a written independent contractor agreement with the person, taking into consideration the factors outlined above that are used to determine whether this person will be considered an independent contractor or an employee.  Best practice would be to seek legal assistance to take a look at the individual facts of your situation and correspondingly draft the independent contract agreement.  You will find that due diligence in this regard will be much less costly than undergoing litigation for a misclassified employee.

Answer: You are entitled to the $4,000.00 and the employer cannot legally withhold your pay for the accident. The issue for the accident as to who pays is a separate matter.

If you were an independent contractor (e.g. correctly paid by a form 1099), then, as a practical matter, you do not have any recourse unless the damage to the truck was substantially less than $4,000. The employer could sue you, as the contractor who hired the partner who was in the accident, for the damage to the truck, and, assuming that person was at least partially at fault, would likely win; therefore, if you were to sue the company for the money they owe you for the work, they could interpose a counterclaim for the truck damage and likely net out even or, depending on the amount of damage, potentially even come out ahead.