As businesses evolve and adapt to changing labor markets, businesses often seek to modify the traditional employee-employer relationship. These modifications present employers with questions regarding their legal obligations. As various employment arrangements arise, employers are often faced with the task of defining the employment relationship. Two common types of employment relationships entered into include the traditional employee-employer relationship and the independent contractor relationship. Remote work and flexible schedules may blur the lines between the two classifications.
The traditional employment relationship, between employee and employer, is the most common type of employment relationship. In exchange for the employer dictating the hours and the manner the employee works, the employee receives benefits and protections under various laws. This type of relationship is often easy to define, especially when workers are in person, working in the office, with the employer present.
Often much harder to define, especially as more workers move to a remote setting, is the independent contractor relationship. Here, the employer tailors the contract to fit the needs of the parties. This relationship can result in cost savings to the business, as independent contractors will set their own schedule and often bring their own equipment needed to complete the tasks, as opposed to the employer providing the equipment in a traditional employment setting. The employer may also be able to avoid the tax liabilities and costs of employee benefits associated with traditional employees.
Minnesota courts will largely focus on five factors when defining an employment relationship: (1) a business’ right to control the manner of the worker’s performance; (2) how the worker is paid; (3) who furnishes materials for the worker; (4) who is in charge of the premise where the work by the worker is done; and (5) the right of the business to discipline or discharge the worker. Central to the analysis under this test is the amount of control a business has over a worker. As a general rule, if a business only controls the end result of a worker’s work, that worker is likely an independent contractor. If the business is in control of the end result and how that end result is achieved, that party would likely be considered an employee.
As business relationships continue to evolve, courts may soon be faced with determining at what point an employee, who is working a flexible schedule on their personal computer at their home, becomes an independent contractor. Using the analysis outlined above, this hypothetical employee would likely be an independent contractor because that employer is not in charge of how the end work product is achieved, the worker is furnishing their own materials, and the worker is in charge of the premise where they work.
Various situations may require greater focus on one of the factors discussed above. Failure to properly define the relationship can create significant consequences for a business, such as creating tax liabilities or worker’s compensation liabilities. As work settings continue to evolve, defining the employment relationship will become more critical.