A recent decision by the Colorado Court of Appeals illustrates how hard it is for employers to prove that a worker is truly an “independent contractor” for unemployment compensation purposes. In SZL, Inc. v. Industrial Claim Appeals Office, 2011 Colo. App. LEXIS 320 (Colo. App. 2011), the court found that an over-the-road truck driver was an employee entitled to unemployment compensation benefits despite the fact that he had leased his truck from the employer and signed an independent contractor agreement.
Under the Colorado Employment Security Act, services performed for another are deemed to be “employment” for unemployment compensation purposes unless the employer proves that the individual is (1) “free from control and direction in the performance of the service,” and (2) “customarily engaged in an independent trade, occupation, profession, or business related to the service performed.” See C.R.S. 8-70-115(1)(b). As the court noted in SZL, the second requirement normally requires the employer to prove that the worker “actually and customarily provide[s] similar services to others at the same time he or she works for the putative employer.” However, where the worker has agreed to work for only a short period of time, such as three months, the lack of contemporaneous work for others “is not dispositive of the issue.”
Other factors indicating “independent contractor” status are:
- whether the worker has an actual business that will continue after work for the current employer ends;
- whether the employer allows the worker to work for others simultaneously;
- whether the worker is paid through a trade or business name rather than in his or her own name;
- whether the worker provides his own equipment to perform the job; and
- whether the worker has his own business card, business listing, business address, and business telephone number.
As a practical matter, the Colorado Department of Labor takes the position that payment to the worker in his own name is not merely a factor suggesting employee status but is dispositive.
In SZL, the hearing officer found that the worker did not work for anyone else during the three months he worked for SZL, had no trucks other than the one he leased from SZL, was required by the lease to use the truck only for SZL, did not have his own business or business name, was paid in his own name, and had previously driven trucks for another company as an employee for two years before working for SZL.
Proving independent contractor status for unemployment purposes is extraordinarily difficult in Colorado, and workers who qualify as independent contractors for other purposes (such as tax purposes) may nevertheless be entitled to unemployment compensation as “employees.” Moreover, since 2009, Colorado has imposed stiff penalties for willful misclassification of a worker as an independent contractor, including fines of up to $5,000 per worker for a first offense and up to $25,000 per worker for subsequent offenses. See C.R.S. 8-72-114. Therefore, Colorado employers should proceed with caution before classifying any worker as an independent contractor.