February 06, 2017 BY Def Admin
We Can All Learn A Little Something from Strippers: The Basic Analysis Distinguishing Employees from Independent Contractors
Under Georgia law, independent contractors are excluded from coverage under the Georgia Workers’-Compensation Act (hereafter “the Act”), save for a showing of statutory employment or estoppel. Reynolds v. McKenzie Perry Homes, Inc., 261 Ga. App. 379, 380, 582 S.E.2d 534, 535 (2003) and Boatright v. Old Dominion Ins. Co., 304 Ga. App. 119, 123, 695 S.E.2d 408, 412 (2010).
It can be to a business’s advantage to work with independent contractors, as this may lessen their liability under the Act, but there are risks associated with misclassifying workers. If a business misclassifies an employee as an independent contractor and that employee has a compensable work-related injury, the Employer and Insurer can likely face back indemnity benefits, back medical benefits, attorney fees, and penalties.
This article will examine one case in which an employee was misclassified and her Employer was liable for her injury. It will focus on the basic legal principals in determining whether an independent-contractor classification is appropriate, and use this case, based on exotic dancers, to illustrate these ideas. This article does not address the ways in which the Act can apply through statutory employment or estoppel.
Please note that the same worker can be both an independent contractor and an employee for the same Employer depending on the specific employment activity. Moss v. Central of Georgia Railroad Company, 135 GA App. 904, 219 S.E. 2d 593 (1975). For workers’-compensation purposes, Courts evaluate whether the worker was an Independent Contractor or an employee at the time of the injury. Id. at p. 906.
By knowing about the basics of the law, business owners can better evaluate whether independent contractors and employees with whom they work are properly classified for all employment activities.
Accident and Medical Treatment
A 2014 published opinion by Judge Andrea Mitchell provides an interesting and informative basis for learning more about the factors to consider when examining whether an independent contractor classification is appropriate under Georgia law. State Board of Workers’ Compensation Published Awards, http://s3.amazonaws.com/sbwcdocs/google-shared/2014038102Trial.pdf (last visited December 14, 2016).
By way of history, this case involves a work-related accident in which an exotic dancer was struck in the head with a Patron bottle during a fight at her place of employment. Id. at 3. She was taken to Atlanta Medical Center by ambulance with a 3.1 inch full thickness laceration. Id. When her brain CT scan showed no evidence of acute hemorrhage, she was discharged and told to return in roughly one week to have the staples removed. Id.
Four days later, she began treating with Dr. Larry Empting, who diagnosed her with head trauma, scalp injury, a concussion, post-concussion syndrome and post-traumatic migraines. Id. at 4. He placed her out of work and stated that she should remain off work for four to six weeks, “depending on how things go.” Id. He ordered a second head and brain CT as well as a brain and head MRI. It is unclear if these tests were ever performed. Id.
The record showed that the Claimant returned to Dr. Empting once more, five days later. Id. She reported some improvement in her migraines and the swelling at the injury sight had gone down. Id. She still had some tenderness to touch and was advised to return in two weeks. Id. The Claimant testified that she had not paid for her treatment at Dr. Empting or Atlanta Medical Center. Id.
The Employer/Insurer did not pay for any treatment or any income benefits. Id. at 1. Both parties stipulated that the Claimant sustained an injury resulting in a disability for over seven days. Id. Both parties further stipulated the following: the State Board of Workers’ Compensation had jurisdiction to determine the issues in the claim, venue was proper in Fulton County, timely notice was given, the Employer was subject to the Act, and the Employer was properly insured for workers’-compensation on the date of accident. Id.
Key Statutory and Case Law at Issue
The governing statute for the analysis of whether a worker is an employee or an independent contractor is O.C.G.A. 34-9-2(e) (hereafter “the test”), which states:
A person or entity shall otherwise qualify as an independent contractor and not an employee if such person or entity meets all of the following criteria:
- Is a party to a contract, written or implied, which intends to create an independent contractor relationship;
- Has the right to exercise control over the time, manner, and method of the work to be performed; and
- Is paid on a set price per job or a per unit basis, rather than on a salary or hourly basis.
A person who does not meet all of the above listed criteria shall be considered an employee unless otherwise determined by an administrative law judge to be an independent contractor.
Case law has established that the second part of the statute, regarding the right to control, is an incredibly important part of the analysis, as it is the “cardinal rule.” See Malcolm v Sudderth, 98 Ga. App. 674, 106 S.E. 2d 367 (1958).
If after weighing the undisputed evidence, the disputed evidence, and witness credibility the Court cannot reach a conclusion on the right to control, then the Court will look to other factors. Moss, 135 GA App. 904, 906. In the case at issue, Judge Mitchell states these factors as:
- Whether Employer has the right to discharge the Claimant.
- Whether the Employer receives a benefit from the Claimant’s services.
- Whether Claimant is engaged in a distinct occupation or business.
- Whether the work to be performed is usually done under the direction of the Employer or by a specialist who needs no supervision.
- The skill required in the particular occupation.
- Whether the Employer supplies the tools and the place of work for the one employed.
- Length of time for which person is employed.
- Whether work to be performed is a part of the regular business of the Employer.
2014038102 at 5-6.
Application of the Law to the Exotic Dancer’s Employment
First the Court will apply the facts of the case to each part of the test from O.C.G.A. 34-9-2(e). In the case at hand, there was a written contract, which had been in place for one year prior to the accident. 2014038102 at 4. In the contract the Claimant agreed that she was an independent contractor and Judge Mitchell found that she was familiar with such contracts in the industry. Id. Given these facts, the first part of the test, whether the worker is a party to a contract which intends to create an independent contractor relationship, weighs in favor of the Claimant being an Independent Contractor. Id.
Regarding the third part of the test, the method of payment, the Claimant was not paid on a salary or hourly basis, but rather worked for tips. Id. at 5. Further, no one counted her tips at the end of the night. Id. The Employer did not issue her a paycheck or deduct taxes or any withholdings. Id. Lastly, the Employer issued 1099 tax forms for the dancers’ positions. Id. Based on this evidence, Judge Mitchell found that this part of the test also “leans toward an independent contractor relationship.” Id. at 5.
Ultimately, however, after a thorough analysis, Judge Mitchell determined that the second and crucial part of the test, the right to control, tipped towards the Claimant being an Employee. Id. at 6.
Judge Mitchell began her analysis by evaluating the undisputed evidence. Id. at 5. The record established that the Claimant had to look a certain way or she would be required to change costumes or use in-house hair and makeup. Id. She also had to pay a house fee to perform and the initial cost of table dances was fixed. Id. Lastly, it was undisputed that she was required to perform on stage as opposed to performing only table dances. Id. Ultimately Judge Mitchell determined that the undisputed evidence was insufficient to establish who had the right to control. Id. It should be noted however, that in her final analysis all of these facts weighed in favor of the Claimant being an employee. See Id.
Judge Mitchell next took into account the credibility of the witnesses regarding the disputed evidence, but this also did not yield a sufficient conclusion as to who had the right to control. Id. To best evaluate this important part of the test, she looked to other factors surrounding the Claimant’s relationship with the Employer. Id. at 5-6.
The evidence supporting that the Claimant had the right to exercise control over the time, manner, and method of the work to be performed was limited. She could set her own hours and was allowed to come and go as she pleased. Id. at 6. She also supplied the tools of her craft and was a specialist who needed no supervision. Id. These limited facts however, were not enough to support a finding that the Claimant had the right to control.
The evidence that weighed in favor of the Employer having had the right to control was considerably stronger. The Employer controlled her activities in the club and received a substantial benefit from the Claimant’s services. Id. The work performed was an integral part of the Employer’s regular business. Id. Judge Mitchell found that the Claimant was required to tip the housemother. Id. Further there was insufficient evidence to show that the Claimant was engaged in a separate distinct business. No evidence was presented that showed she worked for other clubs or was free to work for other clubs. Id. This evidence along with the undisputed evidence discussed above lead to the ultimate decision that the Employer had the right to control the time, manner, and method of the work to be performed. Since the Employer had the right to control, Judge Mitchell found that the Claimant was an employee, not an independent contractor.
Judge Mitchell admits that the decision was close, but further bolsters her decision by citing precedent that “[a]ny legitimate doubt as to whether the Claimant was an employee or an independent contractor on the date of accident is to be resolved in favor of finding employment status.” Id. (citing Ratliff v. Liberty Mutual Insurance Company, 149 Ga. App. 211, 253 S.E.2d 799 (1979).
Despite the fact that two out of the three parts of the statute weighed in favor of the Claimant being an independent contractor, Judge Mitchell found her to be an Employee. As this case illustrates, the right to exercise control over the time, manner, and method of work is the cardinal rule and can outweigh the other two parts, even when a weighing of other factors surrounding the Claimant’s relationship with the Employer is required.
Ultimately the Employer/Insurer were ordered to pay the Claimant’s indemnity benefits and medical expenses. Judge Mitchell declined to award late payment penalties, and denied the claimants request for ongoing medical treatment.
Now that you have seen how one set of facts applies to the test, look at your business and see whether your employees are correctly classified in all of their activities. If you suspect that independent contractors or employees that you work with are not properly classified, seek further legal assistance.
Special thanks to Kayla Chiang, former summer intern and future associate, for her initial research on this topic
The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved.
H. Michael Bagley