Many companies try to blur the distinction between employees and independent contractors, says Jeffrey L. Braff, an attorney with the Philadelphia office of Cozen and O'Connor. For example, an employee who's been working for the company decides life would be better if she were working from home. The company sets her up with a fax machine and tells the IRS she's an independent contractor, even though she's working only for that one company under her manager's supervision. "Nothing changes except the location," Braff says. "That [person] is clearly not an independent contractor."
Likewise, in a highly publicized case, a group of programmers working on a long-term project for Microsoft had signed documents saying they were independent contractors but later sued the company for inclusion in its benefits program. The programmers had worked full time for 18 months in the company's offices, side by side with full-time employees and doing similar work, so it was hard to tell the difference between the two. The Ninth Circuit Court of Appeals declared they were truly employees.
So what's the difference? According to the 20-factor guideline issued by the IRS, the key issue is control. Independent contractors provide their own equipment, set their own hours, pay their own expenses, hire their own assistants, and control the way they do their own work. They're free to work for as many companies or organizations as they wish, even fierce competitors. Employees work hours set by the employer, use the employer's equipment and work under the employer's supervision.
In a recent Illinois case, a sales representative whose contract was terminated by an engineering firm sued over age discrimination. The firm argued that the sales rep had no claim because he was an independent contractor, not an employee. The U.S. District Court for northern Illinois agreed, noting the firm did not tell the sales rep when to call on customers, did not require him to submit call reports, did not manage his daily operations, withheld no taxes, provided no benefits and never paid his expenses. Whether or not the firm discriminated, the contractor was in no position to sue.
The appellate judges in the case of the California dance program director noted that the distinction between employees and independent contractors works well for all concerned. "Independent contractors typically have greater control over the way in which they carry out their work than employees, and businesses assume fewer duties with respect to independent contractors than employees," they observed in their opinion. "Thus, the independent contractor status provides the hiring party and the worker with an alternative relationship that gives each more freedom and flexibility than the employer-employee relationship."