the right to control is the wrong standard for determining employment status

May 1, 2015 Nathan Gibson

as traditional work arrangements shift, this long-established standard is becoming outdated

The concept of control, or the right to control, is a key factor in most standards for determining whether a worker is an employee or independent contractor. This arises from a long line of cases that determine liability for a worker’s actions.

In an 1863 case, a pedestrian was killed when he fell into a hole at a sewer construction site in Pittsburgh. His widow sued the city, which claimed that liability rested with the construction company and its workers, who were not under the city’s control. The court agreed that the city was not liable because it didn’t control the workers.

In contrast, when a man in 1872 fell and was injured on a wharf, the owner of the wharf was held liable for damages even though it contracted with a company to repair the wharf. In that case, workers were under the control of the wharf owner’s engineers. The court said that the wharf owner controlled the workers and, therefore, was liable for damages.

how are the standards applied in the US?
Today, the right to control appears in the three common standards for determining worker classification:

  • The Internal Revenue Service considers behavior control, financial control, and the relationship of the parties.
  • The first prong of what’s known as the ABC Test that is used in some form by more than 30 states; it questions whether a worker “is free from direction and control, both under contract and in fact….”
  • Finally, the common law approach focuses on whether the hiring party has the right to control the manner and means by which the product is accomplished.

But is control the right standard for classifying whether a worker is an employee or independent contractor?

where does right to control fall short?
“If you tell people where to go, but not how to get there, you'll be amazed at the results.” -- General George Patton.

A soldier in the army does not have anywhere near the amount of autonomy needed to be an independent contractor. The commanding officer has the right to tell a soldier not only what to do but how to do it in excruciating detail. And yet, General George Patton suggests that you get better results if you don’t control how it is done; you get better results by exercising less control.

Moreover, Daniel Pink in his book “Drive” shows that conventional ideas about how to motivate employees are wrong. He demonstrates that when the slightest degree of creativity is needed, providing financial incentives leads to poorer results. He contends that knowledge workers – those whose jobs require something more than repetitive actions – are motivated by autonomy, mastery, and purpose.

In his TedTalk, “The Surprising Science of Motivation,” Pink provides evidence for his theory that autonomy improves performance. Studies show that when tasks required even the most rudimentary cognitive skills, a larger reward led to poorer results. He reports that Google engineers are able to spend 20% of their time on whatever project they want, and this leads to about half of Google’s new products, including Gmail and GoogleNews.

Pink also describes ROWE (Results Only Work Environment). For a small number of companies that have adopted a ROWE, employees don’t have schedules, meetings are optional, and employees can decide when, where, and how to get their jobs done. Employees for these companies are responsible for results; the company does not control the manner or means by which they produce the result. Productivity and worker engagement increases, and turnover decreases.

But doesn’t this sound like these workers were independent contractors? The company didn’t control the manner or means by which the result is achieved. This is what one would expect of an independent contractor.

The problem with looking at the right to control is that the line between employees and independent contractors is becoming blurred. As employees are given more freedom, it becomes impossible to tell the difference between the two. With the rise in telecommuting and remote workers, employers are able to exercise less and less control over employees.

The right to control is simply the wrong standard for determining whether any particular worker is an employee or independent contractor. While the courts and regulators continue to look for evidence of control, the ability of a company to engage with legitimate independent contractors becomes more costly. The opportunity for workers with an entrepreneurial spirit to strike out on their own also becomes more challenging.

Litigation and legislation that focuses on control helps neither companies that want to provide workers more freedom or engage with independent contractors nor workers who want to start their own businesses.

Fair Labor Standards Act: a new direction?
In a previous post, I suggested that the Fair Labor Standards Act (FSLA) may provide a better way to classify workers. The FLSA has standards for exempt employees – those whose work meets particular tests are exempt from overtime pay requirements. Why does this work? You can find out more here.

About the Author

Nathan Gibson

Nathan is Vice President, Independent Contractor Compliance at Randstad Sourceright. He leads our independent contractor compliance team. He and his team help mitigate their clients' risks by properly screening and classifying independent contractors, freelancers, consultants and self-employed workers as part of a complete contingent worker solution. Nathan has more than 16 years experience in the staffing industry.

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