Deepak was hired as a Validation Contractor by Genpharm in January of 2011. At that time, he had signed a contract with Genpharm specifying that he is being hired as an independent contractor for the term of the project related to their Laboratory Information Management Software (LIMS). Contract also specified that he will be paid bi-weekly at the hourly rate of $50/hr without any benefits such as medical, dental, paid sick, vacation and holidays and will not be compensated for overtime. In addition, either party could terminate their relationship upon a two-week notice or breach of contract. Deepak had to report on-site at Genpharm and was expected to work from 9 a.m. to 5 p.m. There was no disciplinary action in the event he failed to do so. After Deepak was hired, he had to train on standard operating procedures related to safety, good manufacturing practices, and good documentation practices per ISO and OSHA regulations. He was provided a laptop by Genpharm to perform his duties related to the project because he would require VPN access in order for him to access Genpharm’s network offsite. Company’s policy prohibited such access on personal laptops for security reasons. He was also provided other necessary office supplies such as pens, notebooks, staplers etc. He received guidelines from the project manager on what documents he will need to write and what validation protocols he will need to execute. The project manager only provided guidance; Deepak was free to choose how the documents were completed. He did not have to follow the format specified in Genpharm’s standard operating procedures as long as the documents met the minimum requirements per the ISO regulations. Deepak’s attendance for project meetings to provide and obtain status updates was not mandatory. Deepak provide status update directly to the project manager. In addition, Deepak did not receive any performance evaluations.
Deepak starting working on another project related to LIMS in November of 2011 before the initial project that he was hired for concluded. After the initial project concluded in December of 2011, Deepak’s contract was renewed to allow him to continue working on the other project. After the Christmas break, Deepak notified the Project Manager that he will resume the project after three weeks because he was going on a last minute vacation. Per the contract, he was not required to provide an advance notice for any time off. After, he came back from vacation he continued working with Genpharm on the second project. His contract was renewed one additional time for a third project before it was terminated in June of 2012 with a two-week notice.
Genpharm had employees in their Validation Department that also had the responsibility of writing validation protocol similar to the ones Deepak was hired to write. However, the department was mainly responsible for equipment and process validation and wasn’t responsible for software validation and did not have the bandwidth to support the LIMS project. Therefore, Deepak was hired to temporarily support the project. By the time his contract was terminated, Genpharm had trained their employees responsible for administrating LIMS on validation related activities as well; therefore, they did not have the need to renew his contract. Upon the termination of his contract, Deepak sued Genpharm alleging that he was misclassified as an independent contractor and should be paid benefits under the California Labor Code.
In Narayan v. EGL, Inc., the plaintiffs filed similar claims alleging that EGL misclassified its drivers as contractors rather than employees. The Court of Appeals for the 9th Circuit held that to establish prima facie case under California law that the relationship was one of employer/employee, the plaintiff needs to provide evidence that he provided services for an employer. Once the employee establishes a prima facie case, the burden then shifts to the employer to prove that the presumed employee was an independent contractor. Deepak provided services for Genpharm and therefore has satisfied the elements of the prima facie case. Genpharm now bears the burden to prove that Deepak was an independent contractor and not an employee.
Historically, courts in similar cases involving the employment relationship have applied the common law test in the absence of an applicable statutory definition of an “employee.” The principal test of an employment relationship under common law is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. In Arnold v. Mutual, court determined that Mutual did not have significant control over the manner and means by which Arnold, an insurance agent, accomplished the results of the services she performed because she used her own judgment in determining whom she would solicit for applications and in what manner she would solicit them. In addition, the general manager at Mutual only provided guidance and did not monitor or supervise Arnold’s work schedule. Arnold’s attendance to meetings and trainings was not mandatory; training was only required in respect to compliance with state law directives. Moreover, Arnold did not receive any performance evaluations during her appointment at Mutual. Similarly, Genpharm did not have significant control over the manner and means by which Deepak rendered his services of writing and executing validation documents. The project manager only provided guidance, and the training was only required to be in compliance with regulations. In addition, his attendance to the meetings was not mandatory, and he did not receive any performance evaluations.
Even though the issue of control has been given significance in such cases, in Narayan v. EGL, the “right to discharge at will, without cause” was determined as the most important indicator of an employment relationship. The court determined that the contract between EGL and its driver with the clause that the contract could be terminated by either party upon thirty day notice or upon breach of contract was a substantial indicator of an at-will employment relationship. However, in Varisco v. Gateway, the court held that a termination at-will clause for both parties may properly be included in an independent contractor agreement, and is not by itself a basis for changing the relationship to one of an employee. Genpharm can defend the contract signed with Deepak with similar contract terms by using the reasoning in Varisco v. Gateway.
Case law has recognized that the principal factor of the common law test, focusing on the issue of control, is not exclusive, and has articulated additional factors. These secondary factors are: whether the one performing services is engaged in distinct occupation or business; the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the skill required in the particular occupation; whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; the length of time for which the services are to be performed; the method of payment, whether by the time or by the job; whether or not the work is part of the regular business of principal; and whether or not the parties believe they are creating the relationship of employer-employee. Case law has also established that such individual factors are not to be applied mechanically as separate tests, but are intertwined, and often given weight depending on the particular combination of factors.
In EGL v. Narayan, majority of the facts pointed towards an employer/employee relationship between EGL and the drivers. As advised by EGL’s instruction video to the drivers, the delivery services provided by the drivers were an essential part of the regular business of EGL. The occupation drivers were engaged in did not require a high level of skill. They were not required to possess any special license beyond a normal driver’s license, and no skills beyond the ability to drive. Even though the drivers supplied equipment used to deliver packages, EGL provided other supplies such as EGL-branded boxes and packing tape to their drivers for package pick-ups. Finally, the drivers worked with EGL for several years because their contracts were renewed automatically. While weighing all the factors as a whole, the court determined that there was sufficient evidence to indicate that an employment relationship existed between EGL and the drivers.
Deepak didn’t engage in a distinct occupation; there were employees at Genpharm that performed similar services under supervision. He was provided with tools and instruments in the form of a laptop, office supplies and Genpharm specific forms. He was also required to work out of the Genpharm facility. He was paid by the hour and not by the job; although, the court in Varisco v. Gateway held that contractors can be paid by the hour. His contract was twice before it was terminated, and he worked with Genpharm for about year and a half. However, services provided by Deepak were not part of the regular business of Genpharm, and Deepak signed a contract with Genpharm specifying that he is being hired as an independent contractor. All these factors along with the principal factor of control will have to be weighed and considered as a whole to determine whether an employment relationship existed between Deepak and Genpharm.
In Narayan v. EGL, significant control by EGL over its drivers was found from the facts that EGL provided training to its drivers, instructed them on how to handle customer complaints and conduct themselves when receiving assignments and packages, disciplined the drivers for showing up late to work, required drivers to give advance notice for vacation, and regulated drivers’ appearance by requiring them to wear EGL branded shirts, safety boots, and an EGL identification card. Even though Deepak was expected to work certain hours, he was not disciplined in the event he failed to do so. In addition, Genpharm did not require advance notice for vacation. While considering these additional facts, it can be assumed that Genpharm did not exercise significant control over Deepak.
When the facts in Deeapak’s case are applied to the principal factor of control and additional factors as established by the case law, they provide Genpharm with a stronger position against Deepak’s claim. Genpharm is recommended not to settle because it is likely that the court will decide in Genpharm’s favor after weighing all the factors and considering them as a whole. Even though there are factors that are indicative towards employment relationship, they may not have sufficient weight to support Deepak’s claim after all the factors are combined together. Since there is still an uncertainty, it’s recommended that Genpharm establish practices in the future to prevent such claims. Genpharm should establish a questionnaire addressing the factors established by case law that will help determine whether to hire a contractor or employee for specific services. If there is still an uncertainty, Genpharm can consult the IRS to determine whether the individual providing the services will be considered an employee for federal tax purpose. Similarly, the Employment Development Department of California can also be consulted to determine whether the individual providing the services will be considered an employee for California Unemployment or Disability Insurance purposes. These practices can help prevent future misclassification. In addition, training can be provided to managers and supervisors that are required to interact with contractors on regular basis to raise awareness on the subject of exercising control over the services provided by the contractors. Moreover, the contracts should include terms in regards to the use of space, instruments and tools required to perform services for Genpharm. They should state that the contractor should provide the necessary tools and equipment or pay a fee to Genpharm for providing the necessary facilities, tools and equipment to render services.