In Varisco v. Gateway Science and Engineering, (— Cal.Rptr.3d —, 2008 WL 4193904, Cal.App. 2 Dist., Sept. 15, 2008), a California Court of Appeal considered whether a company exercised sufficient control to find an employer and employee relationship, thereby making the company susceptible to tort claims as an employer. The Court of Appeal concluded the company did not exercise a sufficient level of control over the individual and the relationship was an independent contractor relationship.
Gateway Science and Engineering, Inc. (“Gateway”) provides professional services for the construction industry in the areas of project management, planning and design management, inspection, and quality assurance. Al Varisco is a construction inspector and a Class-1 Inspector with certification from the California Division of the State Architect (“DSA”). In early 2004, Varisco contacted Gateway seeking work. At that time, Gateway had a contract with the Los Angeles Unified School District (“LAUSD”).
On January 30, 2004, Varisco and Gateway signed a letter agreement whereby Varisco agreed to provide DSA inspection services to the LAUSD, and Gateway would pay Varisco an hourly rate. The letter agreement had an “at-will clause” and also provided that Varisco would receive “no benefits such as medical, dental, paid sick, vacation [or] holidays.” Gateway would provide professional and general liability insurance. The letter also referred to a “scope of work” document which accompanied the letter agreement and was also signed by Varisco on the same date. The scope of work document required that Varisco’s work comport with Title 24 of the California Code of Regulations. The scope of work document also outlined various “project documents” Varisco was expected to submit to the LAUSD in connection with the work he performed.
Varisco admitted in his deposition that he “did not work for Gateway,” but instead Gateway “acted as [his] agent to hook [him] up with [LAUSD].” Varisco also testified that he received no direction from Gateway on how to perform his duties. Varisco received a 1099 for all of his compensation from Gateway. In connection with his work for LAUSD, Varisco provided all of his own apparel and tools.
Varisco had worked on two LAUSD projects for Gateway when Gateway presented Varisco with a new contract which would require him to provide his own car and workers’ compensation insurance. Varisco refused to sign the new contract so Gateway terminated its agreement with him. Consequently, Varisco filed this lawsuit, alleging a variety of tort and contract claims all of which were predicated on Varisco’s status as a Gateway employee. Gateway moved for summary judgment contending that Varisco was an independent contractor and not an employee. The trial court granted Gateway’s motion, and Varisco appealed.
The Court of Appeal began with discussing the legal principles behind determining whether an individual worker is an employee or an independent contractor. Independent contractors follow an employer’s needs in the “results of the work, and not the means whereby it is to be accomplished.” The employer and employee relationship is characterized by complete authoritative control by the employer. Therefore, in determining if an individual is an independent contractor or employee “the most significant question” is “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”
The court also recognized secondary factors that can be used in determining the nature of the relationship. These factors are whether: (1) it is a distinct occupation or business, (2) it is an occupation typically performed by independent contractors or employees, (3) certain level of skill is required, (4) the individual provides his own supplies, instrumentalities or tools, (5) payment is by time or by job, (6) the parties intend or believe they are creating an employee or independent contractor relationship.
Next, the Court of Appeal examined the facts of the case in light of these legal principles. The court began by pointing out all of Varisco’s reports were on LAUSD forms and submitted to the LAUSD. If Varisco had questions on the worksite, or his inspections led him to identify a problem, Varisco reported to LAUSD. Varisco engaged in skilled work, in a distinct occupation. He supplied his own tools, clothes and equipment. Varisco was given no benefits. Lastly, the court found it evident that Varisco and Gateway believed that they were entering into an independent contractor agreement. Nevertheless, Varisco argued some of the factors indicated he was an employee of Gateway. Namely that construction inspection is part of Gateway’s regular business, and he was paid an hourly rate rather than by project. The court noted these two factors weigh in favor of a finding that Varisco was an employee; however the court explained the factors are weighed as a whole and, as such, the factors weigh in favor of finding Varisco an independent contractor. Moreover, the court concluded Gateway did not have the right to control, nor exercise the necessary level of control for an employer and employee relationship.
Varisco’s main argument was the at-will clause in the letter agreement meant he was an employee. Varisco cited case law which held the ability to terminate at-will was strong evidence of an employer and employee relationship. The court disagreed and reasoned the at-will provision in the letter agreement would not control the outcome of the case despite all of the other evidence to a contrary finding. Moreover, independent contractor arrangements have at-will provisions.
The Court of Appeal concluded upon consideration of all of the factors, Gateway and Varisco entered into an independent contractor agreement and conducted themselves accordingly. Therefore, the court affirmed the summary judgment order.
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