Independent Contractor vs. Employee: Control is Key for Determining Employment Relationship in Illinois

Salvador Esquinca injured his back as a result of a motor vehicle accident on April 29, 2010.  The employer, Romar Transportation Systems, Inc., denied benefits and argued that the claimant was an independent contractor.  As an independent contractor, the claimant would not be entitled to the protection of the Illinois Workers’ Compensation Act.  The Arbitrator found that the claimant failed to prove that an employer-employee relationship existed and that he was an independent contractor.  The claimant reviewed the Arbitrator’s decision and both the Commission and the Circuit Court affirmed.  An appeal to the Appellate Court followed.

FACTS:                    At trial, the parties presented significant evidence detailing the nature of their relationship.  The employer was a transportation company that engaged in warehousing, yard storage, truck brokering, and intermodal freight transport by rail and truck.  The employer worked with numerous drivers, some were employees and others were owner-operators hired as independent contractors.  The relationship between the parties began approximately two-and-a-half years before the accident.

The parties outlined the nature of their relationship in the “Contractor Service Agreement.  The Agreement labeled the claimant as an independent contractor and specified that he was not an employee or agent of the employer.  Pursuant to the Agreement, the claimant owned his own truck and was responsible for all operating costs including fuel, fuel taxes, tolls, permits, licenses, maintenance costs, and plate registration.  The claimant determined the method, means, and manner of performance of his duties.  Also, the claimant was responsible for obtaining insurance—including workers’ compensation insurance and “bobtail” insurance—for which the claimant paid the premiums.  The Agreement remained in effect for two years and expired about seven months prior to the accident.

ANALYSIS:           In examining the relationship between the parties, the Arbitrator provided a thorough analysis of the evidence presented at trial and the factors considered in determining that the claimant was an independent contractor.  In reviewing the Arbitrator’s decision, the Court of Appeals noted that there was no bright-line rule for differentiating between an employee and an independent contractor.  Instead, the courts must rely on a factor test previously outlined by the Illinois Supreme Court.  The relevant factors included the following:

(1) the employer’s control over the manner in which work is performed; (2) the employer’s control over the schedule; (3) the manner of compensation; (4) withholding of income, benefits, and social security taxes; (5) the employer’s ability to discharge at will; and (6) supplying materials and equipment.

In applying the above factors, it is well settled that no single factor is determinative, instead the totality of the circumstances must be considered.  That being said, significant weight is given to the amount of control the purported employer exerts over the actions of the individual.

In this case, the Court of Appeals reviewed the evidence presented in connection with the above factors.  In regard to control, the court found that the employer did not exert a notable degree of control over the claimant’s work performance or activities.  The claimant was told where to pick up shipments and when to deliver them.  However, the claimant determined the delivery routes and when and where to make rest stops and refuel.  If the claimant had been hired as an employee, his schedule would have been predetermined by the employer.  In addition, the claimant had the ability to decline a shipment, whereas an employee would not have had a refusal option.  In fact, the claimant testified that he declined shipments in the past, yet the employer enlisted his services for subsequent shipments.  Also, despite the fact that the claimant drove exclusively for the employer, the employer testified that the claimant was free to drive for other companies if he chose to do so.

The court also acknowledged the fact that the claimant owned his own truck and was solely responsible for operating expenses, maintenance, repairs, parking costs, and insurance.  If he were an employee, the employer would have paid these costs.  The Court of Appeals also examined the terms of the Agreement which labeled the claimant as an independent contractor.  Although this labeling did not carry significant weight, the court noted that the claimant’s insurance application indicated he was an owner-operator rather than employee.  Also, when he treated for his injuries after the accident, he listed his own incorporated trucking company as his employer.  The fact that the agreement expired prior to the accident did not impact the court’s decision as the parties acknowledged that their relationship remained the same.

Finally, the Court of Appeals further examined the differences in the employer’s policies regarding its employees versus independent contractors.  The employer did not furnish the trucking equipment to its independent contractors.  The employer also compensated independent contractors differently.  Employees were paid hourly or received a small percentage of each shipment.  On the other hand, independent contractors were paid by the shipment and received a significantly higher percentage of each shipment.  Also, the employer did not deduct taxes or other benefits (health, medical, dental, disability, 401K) from the paychecks of its independent contractors, including the claimant.

Based on the totality of the circumstances and application of the factors test, the Court of Appeals agreed that the claimant was an independent contractor.  Therefore, the claimant was not awarded any benefits under the Act.

BOTTOM LINE FOR EMPLOYERS:         From a defense standpoint, it is important for employers in the trucking business, or any business that regularly enlists services of independent contractors, to take note of the court’s decision in Salvador Esquinca v. IWCC (Romar Transportation Systems, Inc.).  As evidenced by the Arbitrator’s findings and the written decision from the Appellate Court, a thorough analysis of the relationship between the purported employer and employee will be conducted in determining whether an employment relationship exists.  An employer cannot simply rely on the terms of an agreement labeling someone as an independent contractor.  Instead, the employer’s policies and general practices must be consistent with the factors necessary to establish an independent contractor relationship.

Thanks to I&F attorney Dane Kurth for the summary of this case.  Dane works out of the Champaign and Indianapolis offices of Inman and Fitzgibbons and can be reached at dkurth@inmanfitzgibbons.com.

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