Independent Contractor Agreements Don’t Mean Anything

June 3, 2014  |  By

On Valentine’s Day in either first or second grade, Teresa Holting handed me a little card with my name hastily written on the envelope. Inside the envelope, and on the front cover of the card, were a couple of anthropomorphic almonds (or maybe pistachios) having a hell of time. A speech balloon rose out of one of their mouths and conveyed to me the following message: “I’m NUTS about you.”

Teresa Holting was the prettiest girl in the class. When I flipped the card open, she had a handwritten message for me: “This card doesn’t mean anything.”

Over the past few years, I have been reminded of this moment every time a business client confidently provides me an independent contractor agreement during a worker classification audit. These audits are usually conducted by the Texas Workforce Commission or a Workers’ Comp carrier, like Texas Mutual Insurance. Regardless of the source, the auditors always have the same question, “Have you properly classified your workers as independent contractors?” Almost every time, my client responds, “Of course I did . . . here’s the independent contractor agreement he signed!”

Then, unfortunately, I get to relive my quickly broken grade-school heart: “This agreement doesn’t mean anything.”

I always hate to be the bearer of this bad news, but the law is fairly clear on this point. Under the Texas Administrative Code, “[i]f an employment relationship exists, it does not matter that the employee is called something different, such as agent, contract laborer, subcontractor, or independent contractor.” 40 T.A.C. § 821.5.

Now, an independent contractor agreement isn’t completely worthless. It can provide some circumstantial evidence, such as whether the worker knew she had to provide her own insurance or report her own taxes. But these are only a couple of really small pieces of the classification puzzle. The auditor will be looking at bigger factors – all of which are designed to answer the question of whether the employer has the right to direct or control the worker. There are 20 of these factors, and they’re codified as “Attached Graphic” C-8 to Title 40, Rule § 821.5 of the Texas Administrative Code. You can find those factors here.

If you’re a business owner, and the acronyms (TWC or TMI) come knocking on your door, take a look at the 20 factors. These are what they’ll be using to determine if you classified your workers correctly. Of course, you can ignore this and just point to your independent contractor agreement. But, that would be a bit like only reading the front page of a card given to you by the prettiest girl in first or second grade. It’s what’s inside that’s going to hurt.

Posted in: Employment

About the Author(s)

Vela Wood

Vela Wood is a boutique corporate law firm with a local feel and a global impact. We focus our practice in the areas of M&A, Private Equity, Fund Representation, and Venture Transactions.