Employment Law

Is She an Employee:

Sometimes it seems as though it would be a whole lot simpler if one could avoid all of the regulations, taxes, insurances, and costs imposed upon employers by simply hiring "independent contractors." But most regulatory frameworks don't make it that easy. For purposes of unemployment compensation, minimum wage and overtime, social security taxes, workers compensation, federal withholding and other similar legislation, the law looks to the reality of the relationship, rather that what name the parties choose. An independent contractor is not an independent contractor, unless the true nature of the relationship qualifies. The nature of the inquiry varies somewhat depending on which statute or regulation involved. Here are some links to various approaches:

FLSA Fair Labor Standards Act
Unemployment Compensation (Minnesota)
IRS Test

These tests rest upon modified versions of the so-called "common law" test, which looks at a variety of factors. An independent contractor may work for multiple parties; an employee usually works only for one. An independent contractor may have control over whether to accept particular assignments; an employee must accept all assignments, in most cases. An independent contractor often furnishes her own tools; an employee usually does not. An independent contractor typically has control over how a job is to be done, supplying results which meet specifications. These and many other factors are considered. As you can imagine, since the determination of employer versus independent contractor determines also whether an agency has jurisdiction over an issue, and whether it can collect revenues, most regulatory agencies have tended to expand the definition as broadly as possible.

Nature of the Employment Contract. An employment contract is commonly formed when an employer extends an oral or written offer of employment to a potential employee, and the employer accepts employment, orally or in writing. There are exceptions and variations, of course. Some employers require their new employees to sign a formal contract of employment. The contract may be a letter agreement, indicating starting date, starting wages or salary, signed by the employee on the bottom. Major companies like IBM, Honeywell, and General Motors, hire many of their employees by executing a detailed multi-page contract, containing provisions governing trade secrets, proprietary discoveries, competition upon departure, for example.

Use a written contract (Minnesota).   An employment contract can be formed by an oral agreement, as we have said, but Minnesota Statute section 181.55 requires employer's  to provide the employee with a written contract.  The statute states:

• When a contract of employment is consummated between an employer and an employee for work to be performed in this state, or for work to be performed in another state for an employer localized in this state, the employer shall give to the employee a written and signed agreement of hire, which shall clearly and plainly state:
• (1) The date on which the agreement was entered into;
• (2) The date on which the services of the employee are to begin;
• (3) The rate of pay per unit of time, or of commission, or by the piece, so that wages due may be readily computed;
• (4) The number of hours a day which shall constitute a regular day's work, and whether or not additional hours the employee is required to work shall constitute overtime and be paid for, and, if so, the rate of pay for overtime work; and
• (5) A statement of any special responsibility undertaken by the employee, not forbidden by law, which, if not properly performed by the employee, will entitle the employer to make deductions from the wages of the employee, and the terms upon which such deductions may be made.

This statute is not a "statute of frauds." It doesn't prevent the parties from enforcing an oral contract of employment. Rather, it shifts the burden of proof to the employer, giving the employee the benefit of the doubt in disputes about the terms of the contract. The requirement does not apply to farm labor, nor to casual employees temporarily employed, nor employers employing less than ten employees

Some employees are hired under terms of collective bargaining agreements, civil service rules and regulations, or a combination of these, and their contracts are then complexly regulated under the terms of labor law, civil service law, and various governmental constraints. For this reason, one must approach the study of employment law with a degree of caution. We begin by discussion the typical private employment contract. We discuss first the at-will employment relationship and the exceptions to that relationship under Minnesota law. Later, we will discuss issues arising under laws regulating the employment relationship (discrimination, wages and hours, collective bargaining, and so on.) This is an ongoing project, and our material on this topic will grow over time. Stay tuned.

At Will Contracts. Unless their are special circumstances, employment contracts are at will. That means the employer can terminate the employee's services at any time, for a good reason, for no reason, or for a poorly founded or irrational reason. A large number of the phone calls we receive at Rinke-Noonan in the employment area fail to recognize this central point. Many employees in private industry have friends who work for government under civil service, or who belong to a union protected by a collective bargaining agreement. They believe therefor that their employer cannot fire them without good cause, and that they can somehow grieve their termination. But for a large portion of the workforce, this is simply not so. Let us therefore take a brief look at (1) how to determine whether you are an at-will employee and then (2) what rights, if any, might an at-will employee have upon termination.

Exceptions to the at will relationship. Here is a brief list of the typical exceptions to the at-will relationship:

• Collective Bargaining Agreement. A collective bargaining agreement may require termination only for cause and may establish a seniority system. In that case, the union must protect the employee's rights to continued employment through the grievance system provided in the agreement.
• Civil Service Protection. A civil service law may govern the employee's rights and prevent termination except for cause. In that case, the employee must typically challenge the employer's action through the civil service administrative system, although their are exceptions to this. Veterans Preference laws provide protections to some employees.
• Written contract for fixed term. Some employees have written employment contracts guaranteeing a fixed term of employment. Of course, the contract governs in these circumstances. For the last several decades, Minnesota courts have struggled with the so-called Pine-River doctrine, in which employee policy manuals, progressive discipline systems, or policy documents were regarded as creating a fixed term contract. We discuss this issue later.
• Anti-Discrimination laws. State and federal laws provide a major exception to the at-will doctrine. We said earlier that an employer may fire an employee for no reason or any reason, but an employer may not fire or discipline an employee for an illegal reason. State and federal laws extend protections to employees in areas such as disability, gender, racial, ethnic, religious, sexual preference, and other areas of discrimination. Whistle-blower and other anti-retaliation provisions also exist. An employee may not be fired or disciplined as a result of labor organization, filing a workers compensation claim, refusing to engage in illegal conduct, making a discrimination claim, participating in the national guard, and so on. We discuss these protections elsewhere.