This week, the Oregon Court of Appeals, in Avanti Press, Inc. v. Emp't Dept. Tax, provided welcome relief to companies that engage independent contractors. In a world where courts and state and federal agencies have increasingly pursued companies for "misclassification" of employees as "independent contractors," the Court held that a sales representative was an independent contractor and that the company that engaged her was not subject to unemployment tax.
The dispute arose when a sales representative filed a claim for unemployment benefits listing Avanti, a greeting card company, as her "employer." This prompted a notice of tax assessment to Avanti by the Oregon Employment Department for unemployment taxes. Avanti appealed the assessement, and the Administrative Law Judge affirmed in favor of the assessement, finding that the representative was an "employee." The Court of Appeals has now reversed, holding that the representative was an independent contractor.
Under ORS 657.040(1), services for remuneration are deemed to constitute employment unless it is shown that the individual is an independent contractor under the definition set forth at ORS 670.600(2)(a). The key issue in Avanti was whether the sales representative was "free from direction and control over the means and manner of providing the services." If so, then she was an independent contractor. Some variation of the right to control test is common in statutory definitions of independent contractor. Individuals in civil suits, and agencies in enforcement actions, argue that the mere right to control, even in the absence of actual control, is enough to establish an employment relationship.
The court, analyzing the common law history of the test, emphasized that:
the right to control test *** has never required that an "independent contractor" be free from all direction and control. Rather, the question is whether the party contracting for services maintains control over the "means and manner" of performance or, instead, gives more generalized instructions concomitant to the "right of the person for whom the services are provided to specify the desired results."
In Avanti, the sales representative maintained a home office, used her own vehicle, set her own work schedule and was paid purely on commission. Avanti set the prices and targets, and provided the representative with some limited training and sales policies. The representative carried business cards with the Avanti name, and, for a time, she did not represent any other businesses. However, eventually she began representing two other manufacturers and those manufacturers then were listed on her business cards.
The court found persuasive the evidence that the representative set her own schedule, and that the company's expectations revolved around results rather than methods used to obtain those results. The court noted that Avanti "'kept its hands off...day-to-day activities as long as [she] met her sales goals and no issues arose relating to any orders she secured.'" The court noted that "'[i]t has generally been held that a commission salesman who works on a part-time basis, selling only when he feels like it or when the opportunity presents itself, is an independent contractor.'"
Given regulators' aggressive pursuit of misclassification claims, the line that Avanti draws between employee and independent contractor status is helpful. In addition, the court's willingness to rely on pre-codification case law will assist those looking for guidance on proper classification of workers.
There will be more of these cases happening if the economy gets worse. Since the start of the recession, companies have sought to redefine some of their workers so they wouldn't have to pay taxes and benefits to them. There have well documented reports on this practice. The courts are starting to see this recently and have found wrongdoing on both sides.
Posted by: Lulaine | March 12, 2012 at 01:13 PM