Ninth Circuit Holds One Test for Independent Contractor Status – Common Law Agency Approach

July 29, 2010

The Court in Murray v. Principal Financial Group (No.  09-16664, opinion by Judge Schroeder, full opinion available here) examined and articulated the factors a court should look to when determining whether an individual is an independent contractor or employee for purposes of Title VII.  In Murray the plaintiff, Patricia Murray, is a “career agent” for Principal Financial Group where she sells products including annuities, 401(k) plans, and insurance.

 The underlying question examined by the Court was simply whether or not Ms. Murray could bring an action against Principal Financial Group for violations of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000(e).  Only employees (and not independent contractors) can bring claims for violations of Title VII.  The Court sought to clarify what the appropriate test was for determining the employment versus independent contractor status of an individual performing work for a company.  In clarifying what the district court believed were three separate tests, the Ninth Circuit concluded that there was only one test—the common law agency approach as articulated by the Supreme Court in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992).

 According to Judge Schroeder, the analysis provided by the Darden Court (the common law agency approach) is controlling whenever a statute defines the term “employee” in a way that is not contrary to common law.  Title VII, is one example of such a statute because it defines employee as “an individual employed by an employer.” As such, the Court ruled that the twelve factors articulated by the Darden Court which are controlling for purposes of analysis under Title VII are:

 (1)  the skill required; (2) the source of the instrumentalities and tools; (3) the location of the work; (4) the duration of the relationship between the parties; (5) whether the hiring party has the right to assign additional projects to the hired party; (6) the extent of the hired party’s discretion over when and how long to work; (7) the method of payment; (8) the hired party’s role in hiring and paying assistants; (9) whether the work is part of the regular business of the hiring party; (10) whether the hiring party is a business; (11) the provision of employee benefits; and (12) the tax treatment of the hired party.   

 The Court concluded that even though some factors weighed against independent contractor status such as the fact that Ms. Murray receives some benefits and possesses an at-will contract, looking at the facts in their entirety, Ms. Murray was an independent contractor.

 The Court therefore affirmed that Murray was an independent contractor because she was free to operate her business without day to day intrusions, decides when and where to work, maintains her own office where she pays rent, and because Principal Financial Group does not control the manner and means by which Murray accomplishes her job.  The Court’s ruling should provide some further clarity for employers and attorneys looking for the proper test when determining whether to classify somebody as an independent contractor or employee. 

 This is a dicey area and one in which employers can face serious liability for improperly classifying somebody.  It is important to remember that in addition to examining the factors, before determining that somebody is an independent contractor an agreement reviewed and acknowledged by the independent contractor clearly articulating the individual’s independent contractor status and the control which he/she maintains in performing his/her daily work will go a long way to protecting employers from liability.

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