July 22, 2010

Scent Company Passes Smell Test after DOL Independent Contractor Audit

Posted in Contracts, Independent Contractors tagged , , , , at 11:28 am by Tom Jacobson

St. Croix Sensory, Inc. is a sensory laboratory that specializes in odor testing, training, and sales and rental of sensory equipment. It hires “sensory assessors” to perform odor evaluations. The company enters into a contract with each assessor that states that the assessors are independent contractors and not employees.

These relationships worked well until the Minnesota Department of Labor started sniffing around during a routine audit. After that audit, the DOL determined that the assessors were employees, not independent contractors. The DOL ordered St. Croix to pay unemployment taxes on the wages earned by 37 workers.

Thinking that the DOL’s decision really stunk, St. Croix appealed to the Minnesota Court of Appeals. In its July 20, 2010 decision the COA overturned the DOL’s determination and ruled that the workers were independent contractors.

In its sixteen-page opinion, the COA emphasized that the contracts themselves were not determinative. The COA also stressed that because there is no general rule that covers all situations, each case must be judged upon its own particular facts. The COA then analyzed in detail the five main factors it considered: (1) The right to control the means and manner of performance; (2) the mode of payment; (3) the furnishing of material or tools; (4) the control of the premises where the work is done; and (5) the right of the employer to discharge. The COA also considered thirteen other criteria recognized under Minnesota law.

Ultimately, the COA found that based on the facts in this case, St. Croix’s sensory assessors passed the independent contractor smell test, so St. Croix came out smelling like a rose.

The case is St. Croix Sensory, Inc. v Department of Employment and Economic Development. You can read the COA’s opinion at http://bit.ly/apRUOq.

 

The case highlights how important it is to not rely on just a contract or loose “independent contractor” designations of workers. Rather, the entire working relationship must be considered in light of all of these factors. After all, if workers smell like employees, they are employees even if they are called independent contractors.

The comments posted in this blog are for general informational purposes only. They are not to be considered as legal advice, and they do not establish an attorney-client relationship. For legal advice regarding your specific situation, please consult your attorney.

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