Common Law Employees

Under common law rules, courts balance a number of factors to determine whether an employer- employee relationship exists. The employer‘s right to control the manner and means of performing the work is the most important factor distinguishing an employer-employee relationship. It does not matter that the employer gives the employee substantial discretion and freedom to act, so long as the employer has the legal right to control both the method and result of the service.

Some of the other factors examined by the courts in determining whether an employment relationship exists include:

  • Mode of payment. Workers who are paid on a regular basis, e.g., hourly or bi-weekly, are more likely to be considered employees than are persons who are paid a fixed amount for a specific service, regardless of the amount of time taken to complete the task. Withholding for taxes and providing fringe benefits such as medical insurance are considered typical of an employer-employee relationship.
  • Materials and tools. A person who furnishes his or her own materials and tools and equipment and has a significant investment in the tools and equipment used in connection with providing the service is less likely to be considered an employee than is a person who uses tools and materials furnished by the hiring entity.
  • Control of the premises. An employer-employee relationship is more likely to be found where the hiring entity owns or controls the premises where the work is performed. Premises controlled by the service provider or by a third person are considered more characteristic of an independent contractor relationship.
  • Right of discharge. The ability of the hiring entity to terminate or discharge the worker and/ or the ability of the worker to leave before the task is completed without becoming liable for nonperformance under the contract or agreement also are factors examined in determining whether an employment relationship exists.

It is important to note, however, that none of the above factors, standing alone, will determine whether an employment relationship exists. The most important factor is the hiring entity’s right to control the manner and means of completing the work. Doubtful situations generally are resolved by examining the facts of the specific case in light of all relevant factors.

If an employment relationship exists, the legal requirements placed on employers will apply regardless of what the parties call the worker, regardless of how payments are measured or made, and regardless of whether the person works part time or full time, unless a statutory exception applies to the situation.

In some cases, an employment relationship may exist between the employee and more than one employer, creating a situation of joint employment. A common example of this is when businesses obtain employees on contract from a temporary employment agency. It is important for employers to know that when they are in a situation of joint employment, both employers are jointly responsible to ensure that the employee is paid in accordance with the federal Fair Labor Standards Act as described in the Labor Standards section of this chapter. Note also that the Equal Employment Opportunity Commission (EEOC) has issued guidance on the application of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA) and the Equal Pay Act (EPA) to individuals placed in job assignments by temporary employment agencies and other staffing firms (the EEOC refers to such individuals as “contingent workers”). In that Guidance, the EEOC states that either the staffing firm or the client (i.e. the business to which the contingent workers have been supplied), or both, may properly be considered an employer. If either or both has “control” over the contingent worker’s work, that party will be an employer under Title VII, the ADA, the ADEA, and the EPA. Also, even if either lacks such “control”, it will be considered an employer of that contingent worker, if it has enough other employees so as to be subject to those laws.

CREDITS: This post is an excerpt from An Employer’s Guide to Employment Law Issues in Minnesota, originally produced through a collaborative effort between the Minnesota Department of Employment and Economic Development and Lindquist & Vennum, P.L.L.P.

This post is part of a series of posts on hiring an employee in Minnesota.