Dear Employer’s Advisory:
Some of my friends say that there is only one test to determine if a worker is an independent contractor — whether or not the worker performs work for another company during the contract period. I don’t think that’s right — there have to be other factors considered. But my Dad says, “If you see it in the Employer’s Advisory it’s so.” So, please tell me the truth; Is there more than one factor in the independent contractor test?
Signed, Virginia O’Hanlon
Your friends are wrong. Based on a recent ruling in the Colorado Court of Appeals, there is more than one factor to the independent contractor test.
Initially, Virginia, as you know, to establish that a worker is correctly classified as an independent contractor, the business must prove two factors. First, the business must prove the worker is free from control and direction in the performance of the service. Second, the business must establish the worker is customarily engaged in an independent trade, profession or business related to the service performed.
Now with respect to that second factor, for nearly the last 20 years, instead of considering all the factors identified in the independent contractor statute, the state labor department as well as many Colorado courts simply looked at whether or not the worker actually worked for another business during the period in question. And if the business couldn’t establish that factor, the labor department and courts would determine the worker was an employee no matter what other issues or factors might have been present. So, in short, over the course of almost 20 years, through audits and court decisions, the question of whether a worker is an independent contractor had been boiled down to one factor: whether or not the worker worked for others at the same time.
But this overly simplistic approach might have gone the way of the dodo bird after the recent decision by the Colorado Court of Appeals in Softrock v. Industrial Claims Appeals Office.
In that case, Softrock argued the worker’s failure to perform similar work for anyone else during the audit period shouldn’t be dispositive of the independent contractor determination, and that other factors must be considered, even if the worker had only performed services for the one business.
In agreeing with Softrock that other factors must be considered, the Court of Appeals made three observations: First, no such one-factor test appears in Colorado’s independent contractor statute. Second, treating “working for others” or any other any single factor as determinative of whether or not a worker is engaged in an independent trade, profession or business would be difficult to reconcile with the Colorado Legislature having provided nine factors in state statute for the putative employer to show the worker is so engaged. Third, under one of the factors identified in the statute, the worker may choose to work exclusively for the putative employer for a finite period of time specified in a written contract.
So, for these reasons, the Court of Appeals said that past cases that only considered whether or not a worker worked for others were incorrect and that, instead, future cases and audits should consider all the factors, including whether or not the worker performed work for others as identified in in state statute. These factors include whether the business established a quality standard for the worker; paid the worker a salary or hourly rate instead of a fixed or contract rate; could terminate the worker at will during the contract period; provided the worker more than minimal training; provided the worker tools or benefits; dictated the time of performance; paid the worker personally rather than making the checks payable to the trade or business operations; and combined its operations with the workers.
In addition to making these observations, the Court of Appeals found persuasive Softrock’s argument the one-factor test required a retrospective inquiry. That is, Softrock argued that under the one-factor test, the only way a business would truly know whether or not a worker was an independent contractor was to wait until the end of the contract and then look back over the contract period to determine if the worker worked for others during that period. Such a scenario, Softrock argued, constitutes a significant flaw in the one-factor test because businesses could not enter into a contract knowing for certain the worker they were contracting with would be working for others during the contract period.
So, in answer to your question Virginia: Yes, Colorado courts and the state labor department should now consider more than just one factor when making the determination as to whether or not someone is an independent contractor.
Practical tip: While the Softrock decision is certainly helpful for Colorado organizations, it doesn’t mean it still can’t be determined that a worker is an employee instead of an independent contractor when the worker works for just one organization. Instead, the Softrock decision requires an analysis and weighing of all the factors identified in the statute. And if, at the conclusion of that process, the decision maker believes the evidence weighs in favor of an employee classification, the worker will be determined to be an employee.