Independent contractor
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An independent contractor is a natural person, business or corporation which provides goods or services to another entity under terms specified in a contract. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when required during which time, he or she may be subject to the Law of Agency. Contractors often work through a limited company which they themselves own, or may work through an umbrella company.
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[edit] Who is an independent contractor?
The general rule is that:
- If the one who pays for the labor and services of another has the right to control what will be done and how it will be done, this other person is an employee. This will be so even though the employee has been given some degree of freedom of action. The key determinant is the existence of the right to control the details of how any work is done. Whether such control is actually exercised is irrelevant.
- If the one paying for the work does not have the right to control the day-to-day working but merely to direct the desired result, the person supplying the labour is an independent contractor. For example, if a builder uses the in-house employees for basic construction but hires in specialists for electrical, plumbing, plastering, and decorating work as and when required, these are likely to be independent contractors. One clear sign will be whether such individuals are entered in the payroll system and paid as other employees, or paid when the work contracted for is completed and certified of satisfactory quality.
Continuing the example of the builder (above), if Third Parties are aware of the work being performed by a person who appears to be an Independent Contractor and that person approaches them for the supply of materials to be used in those works, it is possible that the Independent Contractor might be considered an Agent of the builder. It depends on how the relationships are formed and proceed. If the Independent Contractor instructs the Third Party to invoice the builder and, in the ordinary course of business, the builder pays, this will clearly be an agency situation. If the builder refuses to pay but had been aware of the Independent Contractor's acts and had done nothing to warn the Third Parties, the builder will be considered a Principal and will be bound. But if there was no apparent or ostensible authority, the Independent Contractor will be liable for breach of the warranty of authority and the builder will have no liability.
[edit] An independent contractor in tort
The employer of an independent contractor is generally not held vicariously liable for the tortious acts and omissions of the contractor, because the control and supervision found in an employer-employee or Principal-Agent relationship is lacking. However, vicarious liability will be imposed in three circumstances:
- where the contractor injures an invitee to the real property of the employer,
- the contractor is involved in an ultra-hazardous activity (one likely to cause substantial injury, such as blasting with explosives), or
- the employer is estopped from denying liability because he has held out the independent contractor as if he were simply an employee or agent.
See also: IRS Reclassification
