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Employment relationship

State-specific laws
What state-specific laws govern the employment relationship?

Indiana has adopted the employment-at-will doctrine. Where there is no definite or ascertainable term of employment, the employment is at-will, and is presumptively terminable at any time, with or without cause, by either the employee or employer. Indiana courts have recognized three narrowly-construed public policy exceptions to the employment-at-will doctrine, which prohibit Indiana employers from terminating an employee for:

  • compliance with jury duty;
  • filing or threatening to file a worker’s compensation claim; or
  • refusing to perform an illegal act.

Indiana’s statutory laws governing the employment relationship can be found in Title 22 (Labor and Safety) of the Indiana Code.

Who do these cover, including categories of workers?

Indiana’s employment-at-will doctrine applies to all employers and employees, unless otherwise provided by contract or statute.

Indiana employment laws cover employees only (with different thresholds for the required number of employees), not independent contractors – for example:

  • the Worker’s Compensation Law applies to every employer-employee relationship in Indiana, unless specifically exempted;
  • the Minimum Wage Law applies to employers with two or more employees; and
  • the Civil Rights Law applies to any employer employing six or more employees within the state.

Misclassification
Are there state-specific rules regarding employee/contractor misclassification?

Yes. Indiana’s state agencies rely on different tests to determine the proper classification of employees and independent contractors.

For the purposes of eligibility for unemployment insurance, the Indiana Department of Workforce Development will consider a worker an independent contractor only if all of the following apply:

  • the individual is free from control and direction in connection with the performance of their service;
  • the service is performed outside the company’s usual course of business, and the individual’s usual area of employment is not within the company’s business; and
  • the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the work that he or she does for the company or is a sales agent who is paid commission only and has complete control over his or her own time and effort. 

For purposes of eligibility for worker’s compensation, the Indiana Worker’s Compensation Board defers to the Internal Revenue Department (IRS) guidelines for the definition of “independent contractor”. Indiana’s workers’ compensation law generally excludes certain workers from the definition of the term “employee,” including real estate professionals, owner-operators that provide a motor vehicle and the services of a driver.

For purposes of state taxes, the Indiana Department of Labor evaluates the same factors as the IRS in making worker classification determinations.

For third-party liability, Indiana has adopted the 10-factor common law test, found at the Restatement (Second) of Agency § 220(2), to determine whether an individual is acting as an employee or an independent contractor. All factors are considered and no single factor is dispositive.

Contracts
Must an employment contract be in writing?

Generally, Indiana employment contracts need not be in writing. However, employment contracts that extend for a term of one year or more must be in writing and signed by the party to be charged. It is highly recommended that employment agreements be in writing.

Are any terms implied into employment contracts?

Indiana courts may imply two terms in employment contracts. First, Indiana courts imply that employment contracts for an indefinite period of time are “at will”—meaning that either the employer or employee may terminate the employment contract at any time and for any reason. Second, Indiana courts also imply a covenant of good faith and fair dealing in employment contracts.

However, Indiana courts do not imply a covenant of good faith and fair dealing to at-will employment relationships.

Are mandatory arbitration agreements enforceable?

Indiana courts will enforce mandatory arbitration agreements. However, the courts will enforce only mandatory arbitration agreements as to those issues that the parties have agreed to arbitrate by clear and express language. Courts will not extend mandatory arbitration agreements by construction or implication.

How can employers make changes to existing employment agreements?

Basic contract principles and the terms of the employment agreement govern modifications of employment agreements. Continued employment is generally sufficient consideration for modification of at-will employment relationships.