Ninth Circuit Consolidates Tests Used To Determine Whether An Individual Is An “Employee” Or An “Independent Contractor” Under Title VII

In Murray v. Principal Financial Group (9th Cir. July 27, 2010), the Ninth Circuit Court of Appeals elevated substance over form by acknowledging that the various tests developed to determine whether an individual is an “employee”—the “common law agency test,” the “economic realities test,” and the “common law hybrid test”—are, in fact, the same test. 

After one of its insurance agents filed suit for sex discrimination, the defendant moved for summary judgment on the basis that the plaintiff was an “independent contractor,” and thus, not an “employee” entitled to the protections of Title VII.  Applying all three potentially applicable tests to determine whether the plaintiff was an “employee” or an “independent contractor,” the district court found that the plaintiff was an independent contractor and granted the defendant’s motion for summary judgment.  The Ninth Circuit affirmed.

The Ninth Circuit Discards The “Economic Realities” and “Hybrid” Tests

In an attempt to “clarify the source of the appropriate test to apply in” Title VII cases, the Ninth Circuit jettisoned the “economic realities” and “hybrid” tests in favor of the common law “agency” test because it found that “there is no functional difference between the three formulations.”  The court noted, however, that even if there is a “difference in practical application” between the tests, the “common law test as pronounced by the Supreme Court [in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992)] would have to control.” 

To determine whether a Title VII plaintiff is an independent contractor or an employee under Darden’s agency test, the Ninth Circuit found that a court must evaluate "the hiring party's right to control the manner and means by which the product is accomplished” with reference to the following factors: 

(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 in business;
(11) The provision of employee benefits; and
(12) The tax treatment of the hired party.

Applying the “agency” test to the facts in Murray, the court found that, on balance, the plaintiff was an independent contractor because she was free to operate without day-to-day intrusions, had the freedom to decide when and where to work, scheduled her own time off, was not entitled to vacation or sick days, was paid on commission only, reported herself as self-employed to the IRS, and sold products other than those offered by defendant in limited circumstances.

What Murray Means for Employers

Murray makes clear that under federal statutes like Title VII and ERISA, whether an individual is an “employee” or an “independent contractor” should be determined by a fact-intensive analysis of the hiring party’s “right to control the manner and means by which the product is accomplished.”  As always, employers should scrutinize their classification of workers as independent contractors for compliance with the applicable test.

For more information, please contact the Seyfarth attorney with whom you work, or any Labor and Employment attorney on our website.