The Employer–Employee Relationship

To analyze a potential employment-law problem one must first answer the following question: Is there an employer-employee relationship in this situation?

To establish an employer-employee relationship it is not enough that a person is performing work for a company that indisputably does have employees. Rather than an employee, such a person might properly be classified as an independent contractor. Generally, an independent contractor is a person who contracts with the principal (company or person) to perform a task according to his or her own methods. The independent contractor is not under the principal's control regarding the physical details of the work.

More precise definitions of who is and who is not an independent contractor vary, depending on the particular law that is involved and the factual situation of each case. Deciding in a particular case whether or not an individual is an independent contractor is not easy. There are many factors you have to consider.

Why is it important in terms of employment law whether an individual is an employee or an independent contractor? The two relationships create very different sets of legal rights and obligations. Important distinctions are in the areas of

1. payroll deduction and tax withholding obligations
2. regulation of payment and fringe benefits made to working persons
3. protection of working persons by federal and state anti-discrimination statutes
4. vicarious liability, and
5. breach-of-contract considerations

Also, companies must be careful to correctly classify the persons who work for them as employees or independent contractors because the legal consequences are expensive.