SUPREME COURT ADDRESSES INDEPENDENT CONTRACTOR ISSUES

An independent contractor is not eligible to receive workers’ compensation benefits from the hiring entity. The Oklahoma Supreme Court has recently revisited the difficult issue of determining when an injured claimant is an independent contractor, rather than an employee, for purposes of workers’ compensation.

In the case of Duncan v. Powers Imports, 65 O.B.J. 3839 (Nov. 15, 1994), claimant responded to a classified ad seeking “distributors.” He then entered into an Independent Distributor Agreement with Corporation. Along with giving claimant complete discretion as to sales of the Corporation’s products “wherever, whenever, in any manner, and for any price,” the agreement provided that “[d]istributor understands that as an independent contractor, he shall have no claims against the Corporation for wages, unemployment, workers’ compensation or disability benefits.”

In the course of its dealings with claimant, Corporation made its products available each morning before 8:00 a.m. and asked that unsold products be returned before 7:00 p.m. each evening. Claimant was injured when a vehicle in which claimant was riding, but which was driven by another distributor, overturned. Claimant sought workers’ compensation benefits from Corporation, arguing that Corporation’s means of making products available to distributors, as well as the fact that he was required to attend sales meetings, made him an employee of Corporation. The trial court determined that claimant was an independent contractor, and denied him workers’ compensation benefits. The court of appeals reversed. The Supreme Court agreed with the trial court and reversed the court of appeals.

In concluding that claimant was an independent contractor, the Supreme Court listed eleven factors developed under Oklahoma law which should be considered in determining whether a claimant is an independent contractor or an employee for workers’ compensation purposes. These factors are:

1. The nature of the contract between the parties.

2. The degree of control which, by the agreement, the hiring party could exercise over details of the work, i.e., what independence did the contractor or agent enjoy?

3. Whether the party hired is engaged in a distinct occupation or business, and pursues such occupation or business for others?

4. Whether the work is of a kind usually done under the direction of an employer, or by a specialist without supervision?

5. What skill is required in the particular occupation?

6. Which party supplied the instruments, tools, and place of work?

7. The length of time the hiring party is engaged in the work?

8. The method of payment, i.e. time based or by the job?

9. Whether the work is part of the regular business of the hiring party?

10. Whether the parties believed they were creating a relationship of master and servant?

11. What rights did the parties have to terminate the relationship without liability?

The Court noted that none of these factors is dispositive in determining whether a person is an independent contractor or an employee, and all of them should be considered and weighed in arriving at a conclusion with regard to the issue. After weighing the eleven factors in the Duncan v. Powers Imports case, a majority of the Court held that the claimant was an independent contractor.

The difficulty of determining whether a party is an independent contractor or employee for workers’ compensation purposes is highlighted by the fact that, even in a fairly open and shut case such as this one in which claimant had agreed to a detailed agreement regarding the relationship, there were still two members of the Court who disagreed with the majority’s conclusion. Justice Opala, a former chief judge of the Worker’s Compensation Court, dissented from the majority because he felt the parties’ conduct toward one another indicated an employer-employee relationship, notwithstanding the written agreement.

In an era of corporate downsizing, more attention has been given to the use of independent contractors rather than employees for certain tasks. Immunity from workers’ compensation liability may be an important additional benefit to such arrangements. However, any proposed independent contractor relationship should be carefully compared against the factors discussed above to determine whether the agreement is really creating the desired relationship. Additionally, if the hiring party wants to take advantage of such a relationship, then it should act as if it is using an independent contractor by imposing as few requirements upon the independent contractor as possible.

Steven K. Metcalf

This Newsletter addresses recent items of interest in various areas pertaining to the construction industry. While the Newsletter may alert you to potential problems or changes in the law, it does not attempt to offer solutions, opinions, or advice concerning specific problems. Such legal advice or opinion can only be given by an attorney after careful consideration of the facts unique to a given situation. Inquiries concerning this Newsletter or its subject matter should be directed to its contributors, Steven K. Metcalf, Esq. at (918) 430-3703 or William H. Spitler, Esq. at (918) 430-3704.