Learning Objectives

At the end of this lesson you should be able to:

• Describe the differences between the employer-employee relationship and the principal-independent contractor relationship.
• Summarize the different obligations of employers and principals to their workers with respect to tax-withholding obligations, wages and fringe benefits, coverage under anti-discrimination statutes, costs and record keeping, and the vicarious liability.
• Provide several reasons why a company might choose to use employees rather than independent contractors.
• Explain some of the possible legal and financial consequences to employers of mischaracterizing employees as independent contractors.
• Define and differentiate the "economic realities" and "common law" tests for determining whether workers are employees or independent contractors.
• Articulate some of the policy arguments in favor of and against government regulation of the employment relationship.
• List and explain the principal exceptions to the at-will doctrine that have been recognized by courts in at least some states to be grounds for "wrongful discharge" claims.
• Identify potential limitations of wrongful discharge claims as effective remedies for employees who believe that they have been unfairly discharged.
• Identify steps that employers may take to reduce possible liabilities from wrongful discharge claims.

Key Terms And Concepts

at-will employment	proper cause
common law test of employee status	protected class employees
compensatory damages	public policy
constructive discharge	punitive damages
covenant of good faith and fair dealing	statutory employees
Worker Adjustment and Retraining Notification Act (WARN)	economic realities test of employee status
vicarious liability	implied contract
wrongful discharge	independent contractor
just cause

In employment law it is important to determine the employer-employee relationship between the person and the company. Persons who perform work while retaining control over the physical details on how the work is to be performed are contractors (e.g., details such as when the work is to be performed, who will perform the work, what equipment will be used) and may be considered independent.

Whether a worker is an employee or an independent contractor will have implications for the employer in terms of tax withholding, benefits, coverage under anti-discrimination employment statutes, costs and record keeping obligations, vicarious liability, and other liability issues such as gender discrimination. Misclassification of workers who are legally employees as independent contractors could create major liabilities for the employer.

Determining the employee-employer relationship is not always easy and it will depend on the law that is being used. Once it is determined that a worker is an employee, it is important to understand that the legal relationship between an employer and the employee is a contractual one. If there is not a collective-bargaining agreement or individual employment contract for an employee who is not employed by the government, the employee is generally considered to be in an "at-will" employee. At-will employment presumes that either the employer or the employee can terminate the employment relationship at any time and for any reason except for a reason that is prohibited by law. It is illegal to discharge employees who are members of protected classes, based on federal and state anti-discrimination statutes.

It may be illegal to discharge non-protected-class employees as well under certain limited circumstances. This can be considered "wrongful discharge." Types of wrongful discharge may include discharges in violation of state public policies, discharges that breach an implied contract, and tortious discharge.