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Totality of circumstances, not single or multi-factor test, determines employee or independent contractor status, says Colorado Supreme Court

In two recent decisions, the Colorado Supreme Court rejected single and multi-factor tests used by courts and administrative agencies in determining whether individuals are employees or independent contractors under the Colorado Employment Security Act. Instead, the court adopted a "totality of the circumstances" test that involves an "inquiry into the nature of the working relationship" between the employer and putative employee.

Softrock Geological Services, Inc. In the primary case, the Division of Unemployment Insurance had audited a geologic services company and issued a notice of liability, contending that a geologist who worked at various times should have been treated as an employee. The geologist worked on a project basis between 2007 and 2010; had his own vehicles, tools, and equipment; and maintained his own liability insurance. He also had his own business cards and did not represent himself as an employee. The company appealed, and a hearing officer reversed, basing the decision on the geologist’s engagement in an independent trade or business while he worked for the company. A hearing panel then reversed that decision, concluding that the geologist was an employee because had not provided services to anyone other than the employer, and, therefore, he did not have an independent trade or business. The court of appeals vacated the panel’s order, concluding that the panel had incorrectly relied on a single-factor test and instead should have relied on the nine-factor test as set out in the Act at Section 8-70-115(1)(c). The Supreme Court, however, rejected the single-factor test used by the Industrial Claim Appeals Office (ICAO) and also rejected the nine-factor test applied by the intermediate court in reaching its decision on appeal.

The Supreme Court agreed with the appeals court that a single-factor test was inappropriate and that the nine factors included in the Act should be considered, but it disagreed with the appellate court’s limitation of consideration to only those nine factors. The nine factors were provided in reference to considering whether a document establishes a presumption of independent contractor status. The Act does not explicitly provide a test for determining whether an individual is "customarily engaged" in an independent business. However, those nine factors established limits on the working relationship, and the Court found them to be indicative of what the General Assembly believed to be "important distinctions between employees and independent contractors." Yet, other factors could also be relevant, the Court found, such as whether the putative employee maintained an independent address or telephone number and independent business cards and listings, whether he or she used her own equipment, whether he or she employed other individuals to complete the work, and whether he or she carried liability insurance. Based on the "wide array of factors that could be relevant," the court declined to require "a rigid check-box type inspection." Instead, a more accurate test would involve an "inquiry into the nature of the working relationship," and the factors to be considered could include the nine factors listed in the Act, as well as other relevant information. The Court explicitly declined to adopt the court of appeals’ test limited to those nine factors. It also rejected the ICAO’s single-factor test. Rather, the Court concluded that whether an individual is customarily engaged in an independent business is a question that can only be answered by applying a "totality of the circumstances" test. The Court affirmed the judgment of the court of appeals and ordered remand to the ICAO for further proceedings (Softrock Geological Services, Inc., Colo. Sup. Ct., No. 12SC501, May 12, 2014).

Western Logistics, Inc. In the second case, the Division audited an employer and found that it should have classified 220 of its drivers as employees under the Act and paid unemployment tax premiums on wages paid to those drivers. The drivers were part of a pool of drivers who were dispatched to various delivery jobs for the employer, an auto-parts delivery business. Every driver provided his or her own truck, tools, and insurance, and also signed an agreement designating him- or herself as an "independent contractor." The employer appealed, and a hearing officer found the drivers were employees and that the contracts were "not true in fact." An ICAO panel affirmed the decision, relying on the fact that the drivers did not contemporaneously provide services for others while working for the employer. The court of appeals affirmed the panel’s determination, also concluding that the employer did not prove that the drivers were free from its control and direction. The Supreme Court reiterated its holding in Softrock and reversed the court of appeals’ judgment and returned the case to the ICAO for additional proceedings. Noting that whether the individual worked for another was "not dispositive," the Court elaborated slightly on Softrock by adding that the inquiry into the relationship between the putative employee and employer was an "expansive" one. The Court again expressed its concerns about the single-factor test unfairly subjecting employers to review without considering the various reasons why an independent contractor might choose not to engage in other work. The Court stated that the single-factor test was "not necessary to adequately protect an individual from the vagaries of involuntary unemployment." A totality of the circumstances test, it concluded, could provide the same protection. Because neither the court of appeals nor the ICAO panel had applied the totality of circumstances test, remand was necessary (Western Logistics, Inc., Colo. Sup. Ct., No. 12SC911, May 12, 2014).