EMPLOYEE OR INDEPENDENT CONTRACTOR?
This question today comes up in many contexts. The Commonwealth Court of Pennsylvania, an intermediate appellate court, in D&R Construction v. Workers’ Compensation Appeal Board, had to determine whether the Construction Workplace Misclassification Act (CWMA) 43 p.s. § 933.1-17 was instructive in evaluating the employee or independent contractor question.
The CWMA, which was passed to remedy concerns over misclassification of workers in the construction industry, sets forth a number of criteria which must be established in order for an individual in the construction industry to be deemed an independent contractor. Those criteria are not identical to the traditionally applied Common Law Test for determining employee/employer relationships.
The factors considered in the Common Law Test are: control of the manner of work to be done, responsibility for results only, terms of the agreement of the parties, nature of work, skills required, distinct occupation, supply of tools, payment by time or job, whether the work is part of the regular business of the alleged employer, and the right to quit at any time. While some factors, control of the work and manner of performance, are given more weight in this determination, there are no mandatory factors, and the presence of all factors is not required.
In contrast, the CWMA sets forth multiple criteria which must be established for an individual to be an independent contractor in the construction industry. The absence of one of these factors, therefore, requires the individual to be deemed an employee. Thus, each factor has equal weight.
Those factors are: a written contract to perform services; the individual is, in fact, free from direction over the performance of those services; the services constitute a trade, occupation, or business in which the individual provides tools for the job; the individual can realize a profit or loss; the individual has an ownership interest in the business; and the individual maintains a business location separate from the location where the services are performed. The failure to withhold payroll taxes may not be a consideration in making the determination of employee/independent contractor.
The criteria set forth in the CWMA clearly differ from those in the traditional Common Law Test for determining the employee/independent contractor. The Court, therefore, was called upon to determine if the CWMA was a legislative clarification of the traditional Common Law Test. The Court rejected this analysis, finding the distinction between the CWMA and the traditional factors to be significant, reflecting legislative activity beyond mere clarification of the preexisting Common Law. Additionally, the Court reasoned that applying this analysis would result in the CWMA replacing the Common Law Test, and thus, the CWMA would be applied beyond the construction industry—something the Court found to be beyond the legislature’s intent in enacting the CWMA. Thus, outside of the construction industry, the CWMA may not be used in Pennsylvania as a guide for resolving the employee/independent contractor question.