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EMPLOYEE-EMPLOYER – ARE YOU A CRIMINAL?

Presented and Prepared by: Kevin J. Luther

kluther@heylroyster.com Rockford & Chicago, Illinois • 815.963.4454

Heyl, Royster, Voelker & Allen PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE • CHICAGO

© 2011 Heyl, Royster, Voelker & Allen

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EMPLOYEE-EMPLOYER – ARE YOU A CRIMINAL? I. ILLINOIS WORKERS’ COMPENSATION ANALYSIS ........................................................................... F-4

A. Who Is an Employer? ................................................................................................................... F-4 B. Who Is an Employee? .................................................................................................................. F-6 C. Employee or Independent Contractor – WC Factors ....................................................... F-8 D. Issue of Control .............................................................................................................................. F-9

II. ILLINOIS EMPLOYEE CLASSIFICATION ACT ......................................................................................F-10

A. 820 ILCS 185/10 ...........................................................................................................................F-10 B. Bartlow v. Shannon, 399 Ill. App. 3d 560, 927 N.E.2d 88, 339 Ill. Dec. 547 (5th Dist. 2010) ............................................................................................F-12 C. Lizak v. Great Masonry, Inc., No. 08-C-1930, 2009 WL 3065396 (N.D. Ill. Sept. 22, 2009) .............................................................................................................F-13 D. Chicago Regional Council of Carpenters v. Joseph J. Sciamanna, Inc., No. 08-C-4636, 2009 WL 1543892 (N.D. Ill. June 3, 2009) ...........................................F-13 E. Surdacki v. Alliance Express Services, Inc., 05 IL.W.C. 46794, 08 I.W.C.C. 0346, 2008 WL 2158721 (Apr. 4, 2008).........................................................F-13

III. UNEMPLOYMENT INSURANCE ACT ...................................................................................................F-14

A. 820 ILCS 405/212, Independent Contractors ...................................................................F-14 B. Miscellaneous Case Decisions ................................................................................................F-14

1. Construction and Application ..................................................................................F-14 2. Construction with Other Law ...................................................................................F-15

IV. FEDERAL INTERNAL REVENUE SERVICE ............................................................................................F-15

A. IRS 20 Factor Test ........................................................................................................................F-15

1. Rev. Rul. 87-41, 1987-1 C.B. 296 .............................................................................F-15 V. PENALTIES FOR EMPLOYER LACKING INSURANCE ......................................................................F-19

A. 820 ILCS 305/4(d) (2007) ..........................................................................................................F-19

1. Noncomplying Employers Lose Protections of Act .........................................F-20

B. Keating v. 68th and Paxton, LLC, 401 Ill. App. 3d 456, 936 N.E.2d 1050, 344 Ill. Dec. 293 (1st Dist. 2010) ..........................................................F-22

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VI. THE INDEPENDENT CONTRACTOR VERSUS THE EMPLOYEE ANALYSIS IN TRUCK DRIVER AND DELIVERYMEN CASES ...............................................................................F-22

A. Cases Involving Specific Truck Driver and Deliverymen Analysis .............................F-23

1. Bauer v. Industrial Comm’n, 51 Ill. 2d 169, 282 N.E.2d 448 (1972) ................................................................................................F-23 2. Earley v. Industrial Comm’n, 197 Ill. App. 3d 309, 553 N.E.2d 1112, 143 Ill. Dec. 126 (4th Dist. 1990) ..........................................F-24 3. Peesel v. Industrial Comm’n, 224 Ill. App. 3d 711, 586 N.E.2d 710, 166 Ill. Dec. 752 (1st Dist. 1992) .............................................F-24 4. Ware v. Industrial Comm’n, 318 Ill. App. 3d 1117, 743 N.E.2d 579, 252 Ill. Dec. 711 (1st Dist. 2000) .............................................F-25 5. Roberson v. Industrial Comm’n, 225 Ill. 2d 159, 866 N.E.2d 191, 310 Ill. Dec. 380 (2007) ..............................................................F-26 6. Skzubel v. Illinois Workers’ Compensation Comm’n, 401 Ill. App. 3d 263, 927 N.E.2d 1247, 340 Ill. Dec. 236 (1st Dist. 2010) ...............................................................................................................F-27

B. Tips for Employers ......................................................................................................................F-28 The cases and materials presented here are in summary and outline form. To be certain of their applicability and use for specific claims, we recommend the entire opinions and statutes be read and counsel consulted.

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EMPLOYEE-EMPLOYER – ARE YOU A CRIMINAL? I. ILLINOIS WORKERS’ COMPENSATION ANALYSIS

A. Who Is an Employer?

An employer/employee relationship must be present at the time of the accidental injury before the provisions of the Workers’ Compensation Act apply. The relationship is created when there is an entity that has any person in its service under a contract of hire, oral or written, express or implied. 20 Ill. Comp. Stat. Ann. 305/1(a) (West 2005). Section 1(a) of the Illinois Workers’ Compensation Act provides an extensive definition of “employer.” In short, an employer is any person or corporation, whether private, public, or political, which has any person in its employment and has either elected to come under the Workers’ Compensation Act or is engaged in activities which have been defined under the Act to be extra-hazardous. This definition includes as employers public entities such as states, counties, municipalities, and school districts. “Employers” also includes persons, corporations, hospitals, churches, charities, or any association which has any person under any contract for hire, express or implied, oral or written. 820 Ill. Comp. Stat. Ann. 305/1(a)(2) (West 2005). One may elect to be covered by the Act in one of two ways: The entity may elect coverage by insuring its workers’ compensation liability with an insurance carrier that is authorized, licensed, or permitted to do business in the state, or by filing notice of its election to be covered with the Illinois Workers’ Compensation Act. 820 Ill. Comp. Stat. Ann. 305/2(a) (West 1983). The State of Illinois has elected to be covered by the Act. 820 Ill. Comp. Stat. Ann. 305/2 (West 1983). Most employers who are in so-called “non-hazardous” employments have elected to be subject to provisions of the Act so as to relieve their company from liability to pay civil damages. In the absence of such an election, the rights of the employer and the employee are the same as those that existed prior to the enactment of the workers’ compensation laws. Where an employer elects to be bound by the Act by insuring its liability, such election is effective only until the date of the expiration or cancellation of the insurance policy. 820 Ill. Comp. Stat. Ann. 305/2(b) (West 1983). Where an employer elects to come under the Act by filing notice with the Illinois Workers’ Compensation Commission, “Commission,” it is bound until the following January 1 and for two terms of one year thereafter. 820 Ill. Comp. Stat. Ann. 305/2(b) (West 1983). An employer may reject the Act after a prior election to come under the Act by filing notice with the Commission, and by giving notice to its employees within 60 days prior to the end of the calendar year. Such an employer may withdraw its rejection at any time by giving 30 days’ written notice. 820 Ill. Comp. Stat. Ann. 305/2(d) (West 1983). The Act also provides for the exemption of certain entities which would otherwise appear to be employers. Businesses with payrolls of $1,000 or less are excluded. 820 Ill. Comp. Stat. Ann. 305/3(17)(a) (West 2005). Corporate officers, more specifically a president, vice president,

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secretary, or treasurer of a corporation, may elect to withdraw themselves from coverage of the Act. 820 Ill. Comp. Stat. Ann. 305/3(17)(b) (West 2005). Officers of corporations will be considered employees if they are performing the duties of a workman at the time of the injury. In Bolnick, the injured employee was also the sole shareholder, president, and was on the Board of Directors with his wife. At the time of his injury, he was in the process of helping a customer and was in the warehouse getting a shirt for the customer when he fell and was injured. The Court found he was properly considered to be an employee under the dual capacity doctrine because at the time of the injury, he was performing the work of an ordinary employee, not the work of a shareholder or director. Bolnick v. Industrial Comm’n, 81 Ill. 2d 22, 405 N.E.2d 771, 39 Ill. Dec. 792 (1980). Owners of households or residences who employ domestic workers are not considered “employers” unless the domestics are employed for a total of 40 or more hours per week for a period of 13 or more weeks during the calendar year. 820 Ill. Comp. Stat. Ann. 305/3(18) (West 2005). Domestic servants may be covered if the homeowner elects to cover them. In Washington v. Draper & Kramer, a female domestic employee was injured when she fell in her employer’s apartment due to paste left on the floor by a paperhanger also employed by the apartment tenant. Because the employer had not elected to come within the provisions of the Workmen’s Compensation Act, it did not apply. Washington v. Draper & Kramer, Inc., 11 Ill. App. 3d 952, 298 N.E.2d 270 (1st Dist. 1973). The Act does not apply to any agricultural enterprise employing less than 400 working days of agriculture or aquaculture labor per quarter during the preceding calendar year, exclusive of working days of the employer’s spouse and other members of his or her immediate family residing with him or her. It is important, however, to delineate between agricultural work and affiliated commercial activities which may require coverage. Where the overall nature of a petitioner’s duties is farm-related, Illinois courts will not attempt to clarify each ancillary or borderline activity to assess compensability. In Skerston, the petitioner was injured while cleaning an auction center’s sale barn. The petitioner was employed as a farm hand by a partnership. One of the partners also owned an auction center and used part of the farm property as a sale barn for the auction center. As the farm partnership’s only full-time employee, the petitioner did everything pertaining to the farm, including cleaning. When he was done with the farm work, the petitioner would go work in the sale barn. The Court affirmed the Commission’s decision that the petitioner was an employee of the farm partnership. It explained that the overall nature of the petitioner’s duties was farm-related and that his work for the auction center was minimal and was only done when his farm work was completed. Skerston v. Industrial Comm’n, 146 Ill. App. 3d 544, 496 N.E.2d 505, 99 Ill. Dec. 812 (3d Dist. 1986). The Act also does not apply to sole proprietors or partners, or members of limited liability companies who elect not to provide and pay compensation for their injuries. A partner cannot be an employee since a partner is a co-owner. A partner cannot claim workers’ compensation benefits for himself even though he may be carried on the company payroll at a salary and has insured the liability of the partnership with a carrier. In a case where brothers were partners hired on an independent contract basis to install siding, the brothers were determined to be

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partners because they split profits, considered themselves partners, and neither had more of a right than the other to hire a new worker. Metro Const., Inc. v. Industrial Comm’n, 39 Ill. 2d 424, 235 N.E.2d 817 (1968). The exception would be if he elects to be covered. 820 Ill. Comp. Stat. Ann. 305/3(20) (West 1999).

B. Who Is an Employee?

Section 1(b)(2) defines an employee as “every person in the service of another under any contract for hire, express or implied, oral or written.” Although volunteers are typically excluded from coverage, volunteer firemen, police, and civil defense members or trainees are covered by the Act. Their benefits are based on their average weekly wage at their regular employment. 820 Ill. Comp. Stat. Ann. 305/10 (West 1980). Policemen and firemen in cities whose population exceeds 200,000 are excluded from operation of the Act. However, coverage does extend to these occupations in smaller municipalities. “Officials” of political bodies are not employees. The Illinois Supreme Court determined that a police patrol officer was an officer of the city and not an employee. City of West Frankfort v. Industrial Comm’n, 406 Ill. 452, 94 N.E.2d 413 (1950). Whether one is an official or an employee depends upon whether the office is created by statute or ordinance; officials filling an office so created are not employees. A night policeman was injured while working and eventually died from his injuries. The Court determined that he was an employee and not an official because the office of police patrolman did not exist by ordinance in that town. Therefore, he had not been appointed to that office. City of Metropolis v. Industrial Comm’n, 339 Ill. 141, 171 N.E. 167 (1930). Where a policeman is appointed by a village, he is an employee and not an “official.” An Elmwood Park police officer was injured and later died from a collision between his motorcycle and an automobile. It was determined that he was an employee and not an official because the office of police patrolman did not exist by ordinance in that town. Therefore, he had not been approved to that office. Johnson v. Industrial Comm’n, 326 Ill. 553, 158 N.E. 141 (1927). Likewise, a volunteer fireman who was compensated at a standard fee per appearance at a fire, subject to the control of the fire chief, furnished tools, material, and equipment by the village, and was subject to discharge by the village board has been held to be an employee of the village board and would therefore have coverage for injuries sustained while fighting a fire. Village of Creve Coeur v. Industrial Comm’n, 32 Ill. 2d 430, 206 N.E.2d 706 (1965). Officers of corporations and owners of businesses while engaged in their official duties are not employees, owning to the theory that one cannot be both an employer and an employee. Corporate officers, including the sole shareholder of a corporation, will qualify as employees if they are performing the duties of an employee as opposed to purely executive duties at the time of their injury. In B. W. Sales, the petitioner was the sole shareholder of his company. He was injured in an automobile accident on his return from a trip in which he was selling brushes to a client. The Court determined he was an employee because he was acting as a traveling salesman at the time of his injuries. B. W. Sales Co. v. Industrial Comm’n, 35 Ill. 2d 418, 220 N.E.2d 405 (1966). In Parro Constr., the petitioner, sole shareholder of a paving company, was injured when a plane he had rented crashed on his return from a trip to inspect machines which

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would be of interest to a paving company. The Court affirmed the prior finding that petitioner was acting as an employee at the time of his injury. Parro Const. Corp. v. Industrial Comm’n, 45 Ill. 2d 367, 259 N.E.2d 67 (1970). These activities must be separate and distinct from the duties as an officer. The same guidelines apply to stockholders. Partners are likewise not employees, and they may not, therefore, make claims as employees against the partnership unless they have elected to be bound by the Illinois Workers’ Compensation Act. Metro Const., Inc. v. Industrial Comm’n, 39 Ill. 2d 424, 235 N.E.2d 817 (1968). Aliens, including illegal aliens, have been included in the definition of “employee.” An award to an undocumented alien was affirmed and workers’ compensation benefits will be paid regardless of immigration status. Economy Packing Co. v. Illinois Workers’ Compensation Comm’n, 387 Ill. App. 3d 283, 901 N.E.2d 915, 327 Ill. Dec. 182 (1st Dist. 2008). While aliens have the same status as other employees, death benefits are reduced 50 percent for beneficiaries of aliens who do not reside in the United States, Mexico, or Canada. 820 Ill. Comp. Stat. Ann. 305/7(i) (West 2005). Illegally employed minors are employees but may elect within six months of date of accident or six months after appointment of a legal representative to waive their rights under workers’ compensation, with a tort claim under the common law, or by statute. No settlement of a workers’ compensation case by a minor is final until payment of settlement and waiver of the right to reject workers’ compensation benefits has been approved by the Commission. 820 Ill. Comp. Stat. Ann. 305/5(a) (West 1995). Where an illegally employed minor elects to receive workers’ compensation benefits, the amount of compensation payable for death, temporary total disability, permanent partial disability, and permanent total disability are increased 50 percent. However, where an employee has on file an employment certificate issued pursuant to the Child Labor Law, a work permit issued pursuant to the Federal Fair Labor Standards Act, or a birth certificate properly and duly issued, these documents will be conclusive evidence as to the age of the injured minor employee for purposes of these sections. 820 Ill. Comp. Stat. Ann. 305/7(h) and 305/8(i) (West 2005). A juror summoned for jury duty is not an employee. Jurors are compelled to report for jury duty and thus are not under a “contract for hire” in which there has been both an offer and an acceptance of employment and notwithstanding receipt of a per diem check. Jaskoviak v. Industrial Comm’n, 337 Ill. App. 3d 269, 785 N.E.2d 1026, 271 Ill. Dec. 832 (3d Dist. 2003). Volunteers who receive no pay and do not regard themselves as employees are not considered employees when injured for workers’ compensation purposes. A “volunteer” who was paid a de minimus amount by a third party may be an employee, as may a lunchtime supervisor at an elementary school whose work was directed by a principal and was paid $52 a month by the school PTA. Board of Ed. of City of Chicago v. Industrial Comm’n, 53 Ill. 2d 167, 290 N.E.2d 247 (1972). Such volunteers retain their common law right to sue for negligence. “Employee” does not include persons performing services, such as a real estate broker, broker-salesman, or salesman, when such persons are paid by commission only. This language has caused some confusion as to whether all commissioned sales people are excluded from the

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category of “employees” or whether the exclusion is limited to real estate salesmen. A real estate salesperson can be considered an employee if their job involves work separate and apart from commission sales.

C. Employee or Independent Contractor – WC Factors

The issue of whether a worker is an independent contractor has been called one of the most vexatious and difficult to determine in the law of workers’ compensation. O’Brien v. Industrial Comm’n, 48 Ill. 2d 304, 269 N.E.2d 471 (1971). While the legislature has defined “employers” and “employees,” the Act does not give a definition of independent contractor. The test to determine whether an individual is an independent contractor or an employee concerns the retention of the right to control the details of the work even if that right has not been exercised. Greenberg v. Industrial Comm’n, 23 Ill. 2d 106, 178 N.E.2d 646 (1961). If this right is retained, then an employer-employee relationship exists. Immaculate Conception Church v. Industrial Comm’n, 395 Ill. 615, 71 N.E.2d 70 (1947). On the other hand, one who receives directions as to the result that is desired, but who does not receive directions concerning the details of how this result is to be accomplished, is typically an independent contractor. Simple as this rule sounds, its application to the varied fact situations in which it applies has proven a challenge to the courts. In determining the existence of an employment relationship, Illinois courts define “control” by looking to the elements from the Restatement of Agency (Second). There are 10 factors considered in the Restatement as essential in determining whether an individual is employed to perform services and is subject to another’s control. Those factors are:

1. The extent of control 2. Engagement in distinct occupation or business 3. Whether the occupation usually requires direction in the particular locality

in question 4. The skill required 5. Who supplies the instrumentalities, tools, and place for work 6. Length of time employed 7. Method of payment 8. Whether or not the work was part of the regular business of the employer 9. Belief of the parties as to the nature of their relationship 10. Whether or not the “employer” is in business

Restatement (Second) of Agency § 220 (1958). Of these factors, the right to control the details of how the work is performed is the most important, Morgan Cab Co. v. Industrial Comm’n, 60 Ill. 2d 92, 324 N.E.2d 425 (1975), inasmuch as an employee is at all times subject to the control and supervision of his employer, whereas an independent contractor represents the will of the owner only as to the result and not as to the means by which it is accomplished. Bauer v. Industrial Comm’n, 51 Ill. 2d 169, 282 N.E.2d 448 (1972), quoting Coontz v. Industrial Comm’n, 19 Ill. 2d 574, 169 N.E.2d 94 (1960). Since many jobs

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contain elements of both relationships and the facts could, depending on their interpretation and the credibility of the witnesses, support either result, the courts have consistently held that the Commission alone is empowered to evaluate the testimony and draw reasonable inferences therefrom. Kirkwood v. Industrial Comm’n, 84 Ill. 2d 14, 416 N.E.2d 1078, 48 Ill. Dec. 556 (1981). Mastercraft Co. v. Industrial Comm’n, 58 Ill. 2d 155, 317 N.E.2d 522 (1974). Only in the event its decision is against the manifest weight of the evidence will the Commission holding be disturbed on review. Kirkwood Bros. Const., 72 Ill. 2d at 458. Only where undisputed facts are susceptible to but a single inference does the issue become one of law and so reviewable by the Appellate Court. Mastercraft Co., 58 Ill. 2d at 157.

D. Issue of Control

Contractual provisions artfully drafted to deliberately substitute the independent contractor for the employer relation so as to avoid workers’ compensation liability have proliferated in recent years. Some have called them “a sham and subterfuge.” Bauer, 51 Ill. 2d at 173. To simplify the difficulties associated with the application of the “control test,” Professor Larson has advanced a different theory of evaluating employment relationships, which looks at the relative nature of the work. Larson suggests that the traditional elements considered by courts in determining whether a workman is an employee or an independent contractor were adopted from the common law concept of master and servant and are not appropriate in determining whether a workman is an employee for purposes of workers’ compensation. Board of Ed. of City of Chicago v. Industrial Comm’n, 53 Ill. 2d 167, 290 N.E.2d 247 (1972). He argues that the right to control a workman should not be the most relevant factor in determining if a workman is an employee in a workers’ compensation case. He believes it is more important to consider the nature of the petitioner’s work in relation to the regular business of the employer. A. Larson Workers’ Compensation, §§ 43.42, 43.50 (1980). Kirkwood, 84 Ill. 2d at 22. In his treatise, Larson explains that as follows:

The theory of compensation legislation is that the cost of all industrial accidents should be borne by the consumer as part of the cost of the product. It follows that any worker whose services form a regular and continuing part of the cost of that product and whose method of operation is not such an independent business that it forms in itself a separate route through which his own cost of industrial accident can be channeled is within the presumptive area of intended production.

1C A. Larson Workers’ Compensation, § 43.51 (1980). The “relative nature of the work” test focuses on: the character of the petitioner’s work or business; how skilled the petitioner is; how much skill the business requires; how much of a separate calling of enterprise it is; to what extent it may be expected to carry some of the accident burden, and so on; the relation to the employer’s business, that is, how much it is a regular part of the employer’s regular work; whether it is continuous or intermittent; and whether duration is sufficient to amount to the hiring of continuing services as distinguished

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from the contract until the completion of the job. 1C A. Larson Workers’ Compensation, § 43.52 (1980). The Illinois Supreme Court has acknowledged the significance of the nature of the work performed in relation to the general business of the employer. The Court cited another case in which it was explained that the nature of the petitioner’s employment and its relation to the regular business of the employer is a factor to be taken into account when making the employee/independent contractor analysis. Alexander v. Industrial Comm’n, 72 Ill. 2d 444, 381 N.E.2d 669, 21 Ill. Dec. 342 (1978). The Court noted that the work done by the petitioner was an integral part of the respondent’s regular business. Kirkwood Bros., 72 Ill. 2d at 461. Nonetheless, it adheres to the rule that the right to control the details of the worker’s performance is the essential element in determining whether a worker is an employee in Illinois.

The tests now applied are long-standing, business relationships have been structured in consideration of them, and insurance protection against compensation claims has been tailored with these tests in mind. It could be unnecessarily disruptive, and expose employers to risks against which they have had no opportunity to insure, for this court to abruptly abandon its previous approach and follow the suggestions of Professor Larson.

Kirkwood, 84 Ill. 2d at 23-24. Recent Illinois cases indicate more than a passing interest in the relative nature of the work test. To date it has not been accepted as the sole test in deciding the difficult question of employee versus independent contractor. The Appellate Court, First District rejected an employee’s request to adopt the relative nature of the work theory, noting that the Supreme Court had indicated more than a passing interest in it but had not yet accepted it as the sole determining factor. Mazur v. Industrial Comm’n of Illinois, 124 Ill. App. 3d 325, 464 N.E.2d 721, 79 Ill. Dec. 817 (1st Dist. 1984). The Appellate Court, Fourth District has also rejected requests to adopt the relative nature of the work test. The Court emphasized that it is only to be a factor considered and that the principal factor in determining employment status is the control test. Lowe v. Industrial Comm’n, 154 Ill. App. 3d 958, 507 N.E.2d 881, 107 Ill. Dec. 728 (4th Dist. 1987). In another case, the Appellate Court, First District stated that the control test is the most important but that the relative nature of the work test is “of growing importance.” Peesel v. Industrial Comm’n, 224 Ill. App. 3d 711, 586 N.E.2d 710, 166 Ill. Dec. 752 (1st Dist. 1992). Petitioner’s counsel will raise both control and relative nature of the work arguments in their employer/employee cases. II. ILLINOIS EMPLOYEE CLASSIFICATION ACT

A. 820 ILCS 185/10

Section 10. Applicability; status of individuals performing service.

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(a) For the purposes of this Act, an individual performing services for a contractor is deemed to be an employee of the employer except as provided in subsections (b) and (c) of this Section. (b) An individual performing services for a contractor is deemed to be an employee of the contractor unless it is shown that: (1) the individual has been and will continue to be free from control or

direction over the performance of the service for the contractor, both under the individual’s contract of service and in fact;

(2) the service performed by the individual is outside the usual course of

services performed by the contractor; and (3) the individual is engaged in an independently established trade,

occupation, profession or business; or (4) the individual is deemed a legitimate sole proprietor or partnership

under subsection (c) of this Section. (c) The sole proprietor or partnership performing services for a contractor as a subcontractor is deemed legitimate if it is shown that: (1) the sole proprietor or partnership is performing the service free from

the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result;

(2) the sole proprietor or partnership is not subject to cancellation or

destruction upon severance of the relationship with the contractor; (3) the sole proprietor or partnership has a substantial investment of

capital in the sole proprietorship or partnership beyond ordinary tools and equipment and a personal vehicle;

(4) the sole proprietor or partnership owns the capital goods and gains

the profits and bears the losses of the sole proprietorship or partnership; (5) the sole proprietor or partnership makes its services available to the

general public or the business community on a continuing basis; (6) the sole proprietor or partnership includes services rendered on a

Federal Income Tax Schedule as an independent business or profession;

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(7) the sole proprietor or partnership performs services for the contractor under the sole proprietorship’s or partnership’s name;

(8) when the services being provided require a license or permit, the sole

proprietor or partnership obtains and pays for the license or permit in the sole proprietorship’s or partnership’s name;

(9) the sole proprietor or partnership furnishes the tools and equipment

necessary to provide the service; (10) if necessary, the sole proprietor or partnership hires its own

employees without contractor approval, pays the employees without reimbursement from the contractor and reports the employees’ income to the Internal Revenue Service;

(11) the contractor does not represent the sole proprietorship or

partnership as an employee of the contractor to its customers; and (12) the sole proprietor or partnership has the right to perform similar

services for others on whatever basis and whenever it chooses. (d) Where a sole proprietor or partnership performing services for a contractor as a subcontractor is deemed not legitimate under subsection (c) of this Section, the sole proprietorship or partnership shall be deemed an individual for purposes of this Act. (e) Subcontractors or lower tiered contractors are subject to all provisions of this Act. (f) A contractor shall not be liable under this Act for any subcontractor’s failure to properly classify persons performing services as employees, nor shall a subcontractor be liable for any lower tiered subcontractor’s failure to properly classify persons performing services as employees.

820 ILCS 185/10 (West 2008).

B. Bartlow v. Shannon, 399 Ill. App. 3d 560, 927 N.E.2d 88, 339 Ill. Dec. 547 (5th Dist. 2010)

In this very recent decision, the Court granted a temporary restraining order barring the state from enforcing the statutory penalties until the defendants could present their evidence of due process violations. Thus, this is an important case to watch because it has the potential to overturn the entire law on procedural due process grounds.

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This case also does a great job of laying out the process by which a determination is made by the department. The process is as follows:

1. An investigation begins with the filing of a complaint by an interested party or by the department.

2. The department then conducts a preliminary investigation to determine whether

there is cause for a full investigation. If they determine that there are grounds for an investigation, then the department is obligated to conduct an investigation.

3. This investigation can utilize any method or methods deemed suitable at the

discretion of the department. 4. Before issuing a final determination, the department must notify the contractor as

to the substance of their findings and give them 30 days’ notice to present written information to be considered by the department in making their final determination.

5. After a violation has been officially found, then penalties will be assessed. 6. The contractor can seek a review of the determination by filing a written request

for an informal conference with the director of the department.

C. Lizak v. Great Masonry, Inc., No. 08-C-1930, 2009 WL 3065396 (N.D. Ill. Sept. 22, 2009)

The Court held that where the plaintiff was paid by the hour, did not provide all his own tools, did not determine the amount of material needed for a given job, did not negotiate prices with customers, and was not financially obligated to make right mistakes made on the job, he was an employee rather than an independent contractor and awarded him $500 per week for each week he was misclassified.

D. Chicago Regional Council of Carpenters v. Joseph J. Sciamanna, Inc., No. 08-C-4636, 2009 WL 1543892 (N.D. Ill. June 3, 2009)

Most notably, the Court determined that the Carpenters Union was an interested third party and could seek private remedy under the statute but refrained from determining what remedy, if any, the Carpenters Union could recover.

E. Surdacki v. Alliance Express Services, Inc., 05 IL.W.C. 46794, 08 I.W.C.C. 0346, 2008 WL 2158721 (Apr. 4, 2008)

The Commission reversed an arbitrator finding and held that an employment relationship existed where the petitioner entered into a lease agreement with respondent trucking company,

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but where the respondent exercised significant control over the petitioner and instructed him that he was required to count the boxes on a load prior to leaving with it, which placed the petitioner in a position outside of the cab where he was injured. Without elaboration, the Commission declared that their decision was consistent with the purpose of the Employee Classification Act. III. UNEMPLOYMENT INSURANCE ACT

A. 820 ILCS 405/212, Independent Contractors

Section 212. Service performed by an individual for an employing unit, whether or not such individual employs others in connection with the performance of such services, shall be deemed to be employment unless and until it is proven in any proceeding where such issue is involved that – A. Such individual has been and will continue to be free from control or

direction over the performance of such services, both under his contract or service and in fact; and

B. Such service is either outside the usual course of the business for which

such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

C. Such individual is engaged in an independently established trade,

occupation, profession, or business. 820 ILCS 405/212 (West 1951).

B. Miscellaneous Case Decisions

1. Construction and Application

Because the Unemployment Insurance Act was passed with the public welfare in mind, its terms should be liberally construed in favor of inclusion. Carpetland U.S.A., Inc. v. Illinois Dept. of Employment Sec., 201 Ill. 2d 351, 776 N.E.2d 166, 267 Ill. Dec. 29 (2002). Unemployment Compensation 6(3). When interpreting the term “independent contractor” under the Unemployment Insurance Act’s independent contractor exemption from employment status, the Court’s inquiry is directed to the actual relationship between the parties rather than the designations and terminology stated in the contracts; in this regard, designations and terminology used in the contract are not controlling. AFM Messenger Service, Inc. v. Department of Employment Sec., 315 Ill. App. 3d 308, 733 N.E.2d 749, 248 Ill. Dec. 74 (1st Dist. 2000), appeal allowed, 191 Ill. 2d 525, 738 N.E.2d 924,

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250 Ill. Dec. 455, affirmed, 198 Ill. 2d 380, 763 N.E.2d 272, 261 Ill. Dec. 302, rehearing denied. Unemployment Compensation 28. Unemployment Insurance Act’s independent contractor exemption from employee status contemplates that one who is engaged in an independent enterprise has a proprietary interest in such business to the extent that he can operate it without hindrance from any individual whatsoever, and whose business also is free from control; furthermore, the individual performing the service must have a proprietary interest in the business to the extent that he could operate the business without disturbance from any other person or, as owner, he could sell or give away the business. AFM Messenger Service, Inc. v. Department of Employment Sec., 315 Ill. App. 3d 308, 733 N.E.2d 749, 248 Ill. Dec. 74 (1st Dist. 2000), appeal allowed, 191 Ill. 2d 525, 738 N.E.2d 924, 250 Ill. Dec. 455, affirmed, 198 Ill. 2d 380, 763 N.E.2d 272, 261 Ill. Dec. 302, rehearing denied. Unemployment Compensation 28. Each of the three conditions for the independent contractor exception from the Unemployment Insurance Act must be met before the exemption is allowed. O’Hare-Midway Limousine Service, Inc. v. Baker, 232 Ill. App. 3d 108, 596 N.E.2d 795, 173 Ill. Dec. 171 (1st Dist. 1992). Unemployment Compensation 28. Exemption provisions for independent contractors under Unemployment Compensation Act must be strictly construed against one claiming such exemption. Yurs v. Director of Labor, Dept. of Labor, Division of Unemployment Compensation, 94 Ill. App. 2d 96, 235 N.E.2d 871 (2d Dist. 1968). Taxation 3285; Unemployment Compensation 6(3). Under this paragraph providing that service for employing unit is deemed “employment” unless certain requirements are proved, failure to establish any one of such requirements causes exemption to fail. Gladstone Cab Co. v. Donnelly, 30 Ill. 2d 465, 197 N.E.2d 3 (1964). Taxation 3271.

2. Construction with Other Law

Whether a company’s workers are employees or independent contractors for purposes of unemployment compensation is a mixed question of law and fact. Veterans Messenger Service, Inc. v. Jordan, 393 Ill. App. 3d 715, 913 N.E.2d 1094, 332 Ill. Dec. 804 (1st Dist. 2009), appeal denied, 234 Ill. 2d 554, 920 N.E.2d 1082, 336 Ill. Dec. 492. Taxation 3291(9). IV. FEDERAL INTERNAL REVENUE SERVICE

A. IRS 20 Factor Test

1. Rev. Rul. 87-41, 1987-1 C.B. 296

As an aid to determining whether an individual is an employee under the common law rules, twenty factors or elements have been identified as indicating

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whether sufficient control is present to establish an employer-employee relationship. The twenty factors have been developed based on an examination of cases and rulings considering whether an individual is an employee. The degree of importance of each factor varies depending on the occupation and the factual context in which the services are performed. The twenty factors are designed only as guides for determining whether an individual is an employee; special scrutiny is required in applying the twenty factors to assure that formalistic aspects of an arrangement designed to achieve a particular status do not obscure the substance of the arrangement (that is, whether the person or persons for whom the services are performed exercise sufficient control over the individual for the individual to be classified as an employee). The twenty factors are described below: 1. INSTRUCTIONS. A worker who is required to comply with other persons’ instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if the person or persons for whom the services are performed have the RIGHT to require compliance with instructions. See for example, Rev. Rul. 65-598, 1968-2 C.B. 464, and Rev. Rul. 66-381, 1962-2 C.B. 449. 2. TRAINING. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner. See Rev. Rul. 70-630, 1970-2 C.B. 229. 3. INTEGRATION. Integration of the worker’s services into the business operations generally shows that the worker is subject to direction and control. When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business. See United States v. Silk, 331 U.S. 704, 1947-2 C.B. 167. 4. SERVICES RENDERED PERSONALLY. If the Services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the results. See Rev. Rul. 55-695, 1955-2 C.B. 410. 5. HIRING, SUPERVISING, AND PAYING ASSISTANTS. If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an

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independent contractor status. Compare Rev. Rul. 63-115, 1963-1 C.B. 178, with Rev. Rul. 55-593, 1955-2 C.B. 610. 6. CONTINUING RELATIONSHIP. A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals. See United States v. Silk. 7. SET HOURS OF WORK. The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control. See Rev. Rul. 73-591, 1973-2 C.B. 337. 8. FULL TIME REQUIRED. If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom he or she chooses. See Rev. Rul. 56-694, 1956-2 C.B. 694. 9. DOING WORK ON EMPLOYER’S PREMISES. If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. Rev. Rul. 56-660, 1956-2 C.B. 693. Work done off the premises of the person or persons receiving the services, such as at the office of the worker, indicates some freedom from control. However, this fact by itself does not mean that the worker is not an employee. The importance of this factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employer’s premises. Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required. See Rev. Rul. 56-694. 10. ORDER OR SEQUENCE SET. If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker’s own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. Often, because of the nature of an occupation, the person or persons for whom the services are performed do not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person or persons retain the right to do so. See Rev. Rul. 56-694.

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11. ORAL OR WRITTEN REPORTS. A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control. See Rev. Rul. 70-309, 1970-1 C.B. 199, and Rev. Rul. 68-248, 1968-1 C.B. 431. 12. PAYMENT BY HOUR, WEEK, MONTH. Payment by the hour, week, or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor. See Rev. Rul. 74-389, 1974-2 C.B. 330. 13. PAYMENT OF BUSINESS AND/OR TRAVELING EXPENSES. If the person or persons for whom the services are performed ordinarily pay the worker’s business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regulate and direct the worker’s business activities. See Rev. Rul. 55-144, 1955-1 C.B. 483. 14. FURNISHING OF TOOLS AND MATERIALS. The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship. See Rev. Rul. 71-524, 1971-2 C.B. 346. 15. SIGNIFICANT INVESTMENT. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship. See Rev. Rul. 71-524. Special scrutiny is required with respect to certain types of facilities, such as home offices. 16. REALIZATION OF PROFIT OR LOSS. A worker who can realize a profit or suffer a loss as a result of the worker’s services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. See, Rev. Rul. 70-309. For example, if the worker is subject to a real risk of economic loss due to significant investments or a bona fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor. The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor.

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17. WORKING FOR MORE THAN ONE FIRM AT A TIME. If a worker performs more than de minimus services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor. See Rev. Rul. 70-572, 1970-2 C.B. 221. However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement. 18. MAKING SERVICE AVAILABLE TO GENERAL PUBLIC. The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship. See Rev. Rul. 56-660. 19. RIGHT TO DISCHARGE. The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which causes the worker to obey the employer’s instructions. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications. Rev. Rul. 75-41, 1975-1 C.B. 323. 20. RIGHT TO TERMINATE. If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer-employee relationship. See Rev. Rul. 70-309.

V. PENALTIES FOR EMPLOYER LACKING INSURANCE

A. 820 ILCS 305/4(d) (2007)

Whenever a panel of three Commissioners, comprised of one member of the employing class, one member of the employee class, and one member not identified with either the employing or employee class, with due process and after a hearing, determines an employer has knowingly failed to provide coverage as required by paragraph (a) of this section, the failure shall be deemed an immediate serious danger to public health, safety, and welfare sufficient to justify service by the Commission of a work-stop order on such employer, requiring the cessation of all business operations of such employer at the place of employment or job site. Any law enforcement agency in the state shall, at the request of the Commission, render any assistance necessary to carry out the provisions of this section, including, but not limited to, preventing any employee of such employer from remaining at a place of employment or job site after a work-stop order has taken effect. Any work-stop order shall be lifted upon proof of insurance as required by this Act. Any orders under this section are appealable under Section 19(f) to the circuit court.

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Any individual employer, corporate officer, or director of a corporate employer, partner of an employer partnership, or member of an employer limited liability company who knowingly fails to provide coverage as required by paragraph (a) of this section is guilty of a Class 4 felony. This provision shall not apply to any corporate officer or director of any publicly-owned corporation. Each day’s violation constitutes a separate offense. The state’s attorney of the county in which the violation occurred, or the attorney general, shall bring such actions in the name of the People of the State of Illinois, or may, in addition to other remedies provided in this section, bring an action for an injunction to restrain the violation or to enjoin the operation of any such employer. Any individual employer, corporate officer, or director of a corporate employer, partner of an employer partnership, or member of an employer limited liability company who negligently fails to provide coverage as required by paragraph (a) of this section is guilty of a Class A misdemeanor. This provision shall not apply to any corporate officer or director of any publicly-owned corporation. Each day’s violation constitutes a separate offense. The state’s attorney of the county in which the violation occurred, or the attorney general, shall bring such actions in the name of the People of the State of Illinois. The criminal penalties in this subsection (d) shall not apply where there exists a good faith dispute as to the existence of an employment relationship. Evidence of good faith shall include, but not be limited to, compliance with the definition of employee as used by the Internal Revenue Service.

1. Noncomplying Employers Lose Protections of Act

Employers who are subject to and who knowingly fail to comply with this section shall not be entitled to the benefits of this Act during the period of noncompliance but shall be liable in an action under any other applicable law of this state. In the action, such employer shall not avail himself or herself of the defenses of assumption of risk or negligence or that the injury was due to a co-employee. In the action, proof of the injury shall constitute prima facie evidence of negligence on the part of such employer, and the burden shall be on such employer to show freedom of negligence resulting in the injury. The employer shall not join any other defendant in any such civil action. Nothing in this amendatory Act of the 94th General Assembly shall affect the employee’s rights under subdivision (a)3 of section 1 of this Act. Any employer or carrier who makes payments under subdivision (a)3 of section 1 of this Act shall have a right of reimbursement from the proceeds of any recovery under this section. An employee of an uninsured employer, or the employee’s dependents in case death ensued, may, instead of proceeding against the employer in a civil action in court, file an application for adjustment of claim with the Commission in accordance with the provisions of this Act, and the Commission shall hear and determine the application for adjustment of claim in the manner in which other claims are heard and determined before the Commission.

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All proceedings under this subsection (d) shall be reported on an annual basis to the Workers’ Compensation Advisory Board. Upon a finding by the Commission, after reasonable notice and hearing, of the knowing and willful nature or refusal of an employer to comply with any of the provisions of paragraph (a) of this section or the failure or refusal of an employer, service, or adjustment company or an insurance carrier to comply with any order of the Illinois Workers’ Compensation Commission pursuant to paragraph (c) of this section disqualifying him or her to operate as a self-insurer and requiring him or her to insure his or her liability, the Commission may assess a civil penalty of up to $500 per day for each day of such failure or refusal after the effective date of this amendatory Act of 1989. The minimum penalty under this section shall be the sum of $10,000. Each day of such failure or refusal shall constitute a separate offense. The Commission may assess the civil penalty personally and individually against the corporate officers and directors of a corporate employer, the partners of an employer partnership, and the members of an employer limited liability company, after a finding of a knowing and willful refusal or failure of each such named corporate officer, director, partner, or member to comply with this section. The liability for the assessed penalty shall be against the named employer first, and if the named employer fails or refuses to pay the penalty to the Commission within 30 days after the final order of the Commission, then the named corporate officers, directors, partners, or members who have been found to have knowingly and willfully refused or failed to comply with this section shall be liable for the unpaid penalty or any unpaid portion of the penalty. Upon investigation by the insurance noncompliance unit of the Commission, the attorney general shall have the authority to prosecute all proceedings to enforce the civil and administrative provisions of this section before the Commission. The Commission shall promulgate procedural rules for enforcing this section. Upon the failure or refusal of any employer, service, or adjustment company or insurance carrier to comply with the provisions of this section and with the orders of the Commission under this section, or the order of the court on review after final adjudication, the Commission may bring a civil action to recover the amount of the penalty in Cook County or in Sangamon County in which litigation the Commission shall be represented by the Attorney General. The Commission shall send notice of its finding of noncompliance and assessment of the civil penalty to the Attorney General. It shall be the duty of the Attorney General within 30 days after receipt of this notice to institute prosecutions and promptly prosecute all reported violations of this section. Any individual employer, corporate officer, or director of a corporate employer, partner of an employer partnership, or member of an employer limited liability company who, with the intent to avoid payment of compensation under this Act to an injured employee or the employee’s dependents, knowingly transfers, sells, encumbers, assigns, or in any manner disposes of, conceals, secretes, or destroys any property belonging to the employer, officer, director, partner, or member is guilty of a Class 4 felony.

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B. Keating v. 68th and Paxton, LLC, 401 Ill. App. 3d 456, 936 N.E.2d 1050, 344 Ill. Dec. 293 (1st Dist. 2010)

The plaintiff filed a premises liability lawsuit against the defendants for injuries he sustained while working at a construction site. In the Fourth Amended Complaint, the plaintiff added allegations that the defendants knowingly failed to provide workers’ compensation insurance as required by section 4(d) of the Act. Under section 4(d), employers who knowingly fail to provide insurance are presumed liable. The defendants in Keating owned and managed an apartment building. Plaintiff fell from the third floor porch of the apartment building, suffering severe injuries. He filed 4(d) claims against the owner and manager of the apartment building, stating that they were statutory employers under the Workers’ Compensation Act. The defendants moved to strike the 4(d) allegations, stating that the Commission had exclusive jurisdiction to make these types of determinations, not the circuit court. The circuit court granted defendants’ Motion to Strike, agreeing that the Commission had exclusive jurisdiction to determine whether defendants were statutory employers and whether they knowingly failed to provide insurance. Plaintiff appealed. No application for adjustment of claim was filed with the Illinois Workers’ Compensation Commission for this accident. The Appellate Court affirmed the striking of the 4(d) allegations. It noted that the Illinois legislature had determined that all questions arising under the Act, except as otherwise provided, shall be determined by the Commission. After considering section 4(d) and sections 18 and 19 of the Act, the Court determined the legislature intended for the Commission to determine whether employers subject to the Act had failed to comply with its regulations and what penalties may be awarded. The Court concluded that these issues must be presented to the Workers’ Compensation Commission before filing a lawsuit in circuit court. VI. THE INDEPENDENT CONTRACTOR VERSUS THE EMPLOYEE ANALYSIS IN TRUCK

DRIVER AND DELIVERYMEN CASES

The determination of whether or not a truck driver or deliveryman is an employee or an independent contractor involves some of the same analysis seen in other employment settings. The determination of whether a petitioner is an employee or independent contractor is a threshold inquiry that is to be made in any workers’ compensation claim. Bauer v. Industrial Comm’n, 51 Ill. 2d 169, 282 N.E.2d 448 (1972). Because the inquiry is so fact-specific, there can be no rule that governs all cases in this area. Roberson v. Industrial Comm’n, 225 Ill. 2d 159, 866 N.E.2d 191, 310 Ill. Dec. 380 (2007). Therefore, results can be somewhat unpredictable. Courts have identified several general factors that help determine whether a driver is an employee or independent contractor. Id. Some of these factors include: whether the company has the right to control the worker’s work; whether the company actually controls the manner in

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which the worker works; whether the company dictates the worker’s schedule; whether the company withholds taxes from the worker’s pay; whether the worker is paid hourly; whether the worker may be discharged at will; whether the company or worker supplies the tools and materials used; and whether the company’s general business encompasses the worker’s work or whether the worker’s work is an entirely separate business. Id. The label given the parties in a written contract is a factor, but is not dispositive of employment status. Earley v. Industrial Comm’n, 197 Ill. App. 3d 309, 553 N.E.2d 1112, 143 Ill. Dec. 126 (4th Dist. 1990). Ultimately, the determination is based on the totality of the circumstances. Roberson v. Industrial Comm’n, 225 Ill. 2d 159, 866 N.E.2d 191, 310 Ill. Dec. 380 (2007). The fact that the Commission and courts consider all these factors brings up the issue of which is most important and determinative. Many courts have considered control to be the single most important factor, but they also indicate that no single factor is determinative and the significance of the factors often depends on the work that is involved. Id. Some courts have noted that one factor gaining significance is the relationship of the petitioner’s work to the employer’s business. In several cases involving truck drivers, courts have quoted and focused on a line from the Larson treatise, which states there is “a growing tendency to classify owner-drivers of trucks as employees when they perform continuous service which is an integral part of the employer’s business.” Roberson v. Industrial Comm’n, 225 Ill. 2d 159, 866 N.E.2d 191, 310 Ill. Dec. 380 (2007).

A. Cases Involving Specific Truck Driver and Deliverymen Analysis

Cases involving truck drivers and deliverymen have provided a lot of litigation over the employee/independent contractor distinction. In the trucker and deliverymen cases, the courts have addressed some very detailed factual issues which can often tip the consideration either way. The cases are very fact-specific and somewhat unpredictable. However, they do give us some guidance as to what courts find important when making this key determination. It is important to note that these cases often depend on whether the Commission found that the petitioner was an employee or independent contractor. This is because the applicable standard of review on appeal is the deferential “manifest weight of the evidence” standard. Therefore, the Commission’s employee/independent contractor determination is reversed only if it was against the manifest weight of the evidence.

1. Bauer v. Industrial Comm’n, 51 Ill. 2d 169, 282 N.E.2d 448 (1972)

In Bauer, the petitioner was a pizza deliveryman who had a contract with the employer which denied the employer the right to exercise control over him. The petitioner was required only to deliver the pizza as rapidly as possible and was free to choose any delivery route he desired. He was paid according to the number of deliveries he made. Moreover, he supplied his own automobile and equipment and paid his own expenses, including automobile insurance with extended coverage for business usage. Bauer was found to be an independent contractor.

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This was considered a relatively clear case, even though the Commission had considered Bauer to be an employee. It is important to note that the Supreme Court felt the facts in this case were so strong that it held that the Commission’s determination that Bauer was an employee had been against the manifest weight of the evidence.

2. Earley v. Industrial Comm’n, 197 Ill. App. 3d 309, 553 N.E.2d 1112, 143 Ill. Dec. 126 (4th Dist. 1990)

In Earley, the respondent-company directed where and when the petitioner, a truck driver, would pick up and deliver. However, the petitioner was able to choose his own route and owned and maintained the truck. During the lease term, the petitioner worked only for the company. The lease provided that the company would have exclusive use and control of the equipment, although this language was required by the Interstate Commerce Commission. The petitioner hired help to unload the truck if necessary, paid them himself, and provided workers’ compensation insurance for himself and his workers at the company’s insistence. The petitioner was paid a percentage of the gross revenue from his deliveries and paid his own taxes without any withholding. The company had no unqualified right to fire the petitioner. Each party was able to terminate the contract with 30 days notice upon certain conditions or could terminate for a substantial breach of the lease agreement or the law. The lease indicated that the petitioner was an independent contractor, which the Court found was not a sham label. Finally, the Court noted that the petitioner was involved in the same business as the company, but noted that the petitioner could have, and later did, operate his business as an independent contractor. Earley was found to be an independent contractor.

3. Peesel v. Industrial Comm’n, 224 Ill. App. 3d 711, 586 N.E.2d 710, 166 Ill. Dec. 752 (1st Dist. 1992)

In Peesel, the petitioner owned his dump truck and paid all fuel and maintenance costs, but the lease specifically stated that the company was responsible for supervision and control of all operations under the lease. Additionally, the company required the petitioner to start work at a certain time every morning, instructed the petitioner as to where he was to pick up and deliver items, and provided all of the petitioner’s business and customers. The lease did not have a clause describing the mechanism by which the agreement could be terminated, but the petitioner’s unrebutted testimony indicated that the company could discharge him for any reason at any time. The Court found that the petitioner’s work was an essential element of the company’s business. Additionally, while hospitalized, Peesel was advised by the vice president of the company that he was covered under their workers’ compensation insurance. The Court interpreted this as an indication that the company knew the relationship was one of employer and employee. Moreover, the company’s payment schedule referred to Peesel as “employee” and to the company as “employer.” This document was signed by an official of the company as “employer.” The company pointed out that they did not withhold taxes and that two percent of the petitioner’s gross revenues went to pay for his workers’ compensation insurance, but the Court found these factors to be relatively unimportant in light of the other evidence. Ultimately, Peesel was held to be an employee.

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4. Ware v. Industrial Comm’n, 318 Ill. App. 3d 1117, 743 N.E.2d 579,

252 Ill. Dec. 711 (1st Dist. 2000)

In Ware, the petitioner was an over-the-road truck driver for a company that delivered freight. While the petitioner owned his own semi-tractor, the company exercised substantial control over the petitioner. Rules enforced by the company required that the petitioner could not carry passengers, had to inspect his trailer prior to starting a trip, had to clean when and where the company demanded, and had to follow instructions as to what fuel to buy, where to park, and how to inspect and maintain his equipment in cold weather. He also had to attend safety meetings, follow the directed route if carrying hazardous materials, display his company’s logo on his tractor, contact the company if he was in an accident, follow restrictions on driving hours, and pass a federally mandated physical. The lease involved also had a provision that the petitioner leased the equipment unto the company’s exclusive possession, control and use for the limited purpose of complying with state and federal law. Moreover, although the petitioner had incorporated, the Court found his work to be intimately related to the company’s business because he worked exclusively for the company, served the customers that were designated by the company, and earned a percentage of what the company received from those customers. The petitioner or the company could terminate the contract at any time after 30 days as long as they communicated about it via mail and the company could terminate for certain breaches. Finally, the petitioner was sometimes required to wear a uniform, which the Court found inconsistent with his being an independent contractor. The Court did note that some factors favored finding that the petitioner was an independent contractor, but diminished the importance of these factors. First, the lease referred to the petitioner as an independent contractor. Second, the company did not withhold income tax from its payments to Ware, and Ware had incorporated for tax purposes. Third, the petitioner was paid a set percentage of gross revenue from each load he hauled, which is consistent with how independent contractors are paid. Lastly, he purchased occupational accidental insurance, but this weak factor was made even less important by the fact that his purchase was at the company’s insistence. The Appellate Court, First District, ultimately held that the manifest weight of the evidence indicated that the petitioner, a truck driver, was an employee rather than an independent contractor. It explained that the company’s right of control over the truck driver and the relative nature of his work in relation to the nature of the company’s business required them to find that the petitioner was an employee. The Court described that only four factors favored the petitioner being found an independent contractor and that three of those were entitled to little weight. Therefore, Ware was found to be an employee.

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5. Roberson v. Industrial Comm’n, 225 Ill. 2d 159, 866 N.E.2d 191, 310 Ill. Dec. 380 (2007)

Roberson involved a very close call based upon the Court’s interpretation of a lot of facts. The petitioner owned the truck he used, but rented the trailer from the company and kept it up to the company’s specifications. The contract provided that an employment relationship was not intended and that either party could terminate the contract at any time upon written notice. Under the contract, the company had exclusive possession, control and use of the petitioner’s truck, but only controlled the petitioner as to the results to be obtained. The petitioner could therefore choose his routes as long as he made his deliveries in a timely manner. The petitioner was required to maintain and operate the equipment in compliance with all applicable laws, to notify of a desire to work for someone else, and was given the opportunity to “trip lease.” The petitioner was permitted to have his own employees and was required to carry workers’ compensation coverage both for himself and his employees. He paid for his workers’ compensation and liability insurance, which he purchased through the company. For compensation, petitioner received a percentage of the gross revenue received for the loads he delivered. The company deducted from that amount his taxes and the costs and expenses of operating and maintaining his truck. Petitioner was required by the company to keep a log book. The company kept personnel files on the petitioner and performed annual reviews of the petitioner and its other drivers. Petitioner was required to notify the company if there was an accident. The company provided petitioner with a camera to photograph any damage that may occur. The petitioner did not have to report to work every day, but he was expected to call in daily to report his status. Finally, the court explained that the petitioner’s work fell entirely within the scope of the company’s business, noting the comment from Larson’s treatise that there “is a growing tendency to classify owner-drivers of trucks as employees when they perform continuous service which is an integral part of the company’s business.” The Supreme Court noted how close of a call the employee/independent contractor determination was in this case. Ultimately, the Court held that the Commission’s determination that the petitioner was an employee was not against the manifest weight of the evidence. Roberson was therefore considered to be an employee.

(a) Impact of Roberson Case – A New, Stricter Test?

Some commentators after the Roberson decision have speculated that the Illinois Supreme Court may have created a stricter test for determining if a worker was an independent contractor or employee. “A new, stricter test for independent contractor status? Has the Illinois Supreme Court embraced a test that makes it harder for employers to classify workers as independent contractors rather than employees and thus avoid employee-related taxes and other expenses?” 95 Illinois Bar Journal 234 (May 2007). The analysis focuses on the Roberson court’s citation from the Larson

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treatise about the “growing tendency to classify owner-drivers of trucks as employees when they perform continuous service which is an integral part of the employer’s business.” It also noted a statement from the Supreme Court’s decision in Ragler Motor Sales v. Industrial Comm’n, 93 Ill. 2d 66, 442 N.E.2d 903, 66 Ill. Dec. 342 (1982), which many courts have quoted. In discussing the factors considered when determining whether a worker is an employee or independent contractor, the Ragler court stated:

[B]ecause the theory of [worker’s] compensation legislation is that the cost of industrial accidents should be borne by the consumer as part of the cost of the product, this court has held that a worker whose services form a regular part of the cost of the product, and whose work does not constitute a separate business which allows a distinct channel through which the cost of an accident may flow, is presumptively within the area of intended protection of the compensation act. Thus, this court has recently attributed increased significance to the nature of the work performed in relation to the general business of the employer.

Ragler Motor Sales, 93 Ill. 2d at 71. These two quotations, coupled with the Court’s discussion of how Roberson’s work fell entirely within the business of his employer led this article to wonder whether the relative nature of the work could emerge as the new test for employment status. Contrary to this concern over a shift in the Court’s analysis, a review of the post-Roberson cases that cited the decision indicates that the relative nature of the work test has not become the sole, or even predominant, test for employment status. The Commission and courts still consider the earlier-mentioned factors and balance the facts to determine employment status. The relative nature of the work, along with control, is one of the most important factors to consider, but it is still merely one of the many factors that are balanced to make the determination.

6. Skzubel v. Illinois Workers’ Compensation Comm’n, 401 Ill. App. 3d 263, 927 N.E.2d 1247, 340 Ill. Dec. 236 (1st Dist. 2010)

In this case, the petitioner was a paper man delivering newspapers for one of the respondents, Four M. Four M was in the business of distributing newspapers for the Sun Times. There was a contract between Four M and the Sun Times which required the papers to be delivered dry, readable, and complete to their destinations by 6:30 a.m. Four M, pursuant to the contract with the Sun Times, also prepared bills and made collections from Sun Times subscribers. The Sun Times would provide to Four M any special delivery instructions which were received from their subscribers. The petitioner was a worker for Four M and after an injury, Four M argued that the petitioner was an independent contractor. To support this argument, Four M pointed out that new drivers were given suggested routes, but the driver could deviate from that route, if desired. The contract between Four M and the petitioner stated that the driver was not an employee and the driver would be required to use his own vehicle. Four M, however, would require the drivers to service specific routes, and the agreement indicated that Four M could amend these routes

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without notice. Also, Four M could terminate the agreement at any time, whereas drivers had to give seven days notice. The petitioner testified that when she was hired by Four M, she did not sign any contract. The petitioner also worked exclusively for Four M and never held herself out as an independent contractor providing these services to any other employer. The petitioner did collect payments for Four M from the subscribers, and from those payments, she would be paid a flat rate per day. The petitioner never attempted to acquire her own customers and worked exclusively for Four M. Four M would reimburse drivers for the cost of gasoline. The arbitrator found that the petitioner was not an employee of Four M and the Commission adopted the decision. The circuit court confirmed and the decision went up on appeal before the Appellate Court, First District. In a decision which found the Commission’s decision to be against the manifest weight of the evidence, the Appellate Court affirmed that the right to control the actions of the workers was the most important factor to be considered. The Court found persuasive the fact that Four M dictated the working days and working hours of the workers, and also had passed along the specific instructions as to the manner in which papers were to be packed. The Court also found persuasive the fact that Four M had the ability to terminate the notice without agreement.

B. Tips for Employers

As this survey of Illinois law has shown, the determination of whether a driver is an employee or independent contractor is very fact-specific and somewhat unpredictable. Therefore, a company wanting its workers to be considered independent contractors must be very careful to make sure that the relevant factors tip toward considering the worker an independent contractor. One thing that has been made very clear is that labeling a worker an independent contractor in a formal contract does not preclude the Commission and reviewing courts from determining that the worker is actually an employee. The intention of the parties is one factor that is considered and may swing the balance in a close case, but it is not dispositive. Earley v. Industrial Comm’n, 197 Ill. App. 3d 309, 318, 553 N.E.2d 1112, 143 Ill. Dec. 126 (4th Dist. 1990). Therefore, what matters most is how the relationship actually functions. While there are a lot of factors, it does seem apparent that the most important factors are the extent of the company’s control and the relative nature of the worker’s job activities in relation to the employer’s business. For example, the Appellate Court, First District, has explicitly stated that the right to control is the most important factor and that the second most important is the relative nature of the work in relation to the employer’s business. Ware v. Industrial Comm’n, 318 Ill. App. 3d 1117, 1122-1125, 743 N.E.2d 579, 252 Ill. Dec. 711 (1st Dist. 2000). Therefore, employers need to be very aware of these two factors. Many courts consider the company’s right to control to be the most important factor. This creates the question of how much impact evidence of actual control will have on the evaluation

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this factor. Although the test is focused on the right to control the worker, the actual exercise of control is regarded as strong evidence of the employer’s right to control. Ware v. Industrial Comm’n, 318 Ill. App. 3d 1117, 1123, 743 N.E.2d 579, 252 Ill. Dec. 711 (1st Dist. 2000). If actual control is shown, it will be inferred that the right to control existed. Id. This inference will only be overcome by clear evidence that the employer exceeded its authority. Id. Therefore, companies cannot simply rely on the fact that the contract or lease does not give them the right to control the work. If they exercise substantial control over workers they consider independent contractors, the Commission or a court may find that an employer-employee relationship existed. As outlined above, the relative nature of the work factor may cause companies of truck drivers and deliverymen concern because that work usually constitutes an integral part of the company’s business. In particular, the quotes from the Larson treatise and Ragler decision are concerning to companies that try to classify their truck drivers and deliverymen as independent contractors. Companies in this field need to be aware that this factor is very important to the employee/independent contractor analysis and that there is troubling case law on this factor. One last issue that has come up in several of the cases involving truck drivers is the effect that contract language required by federal regulations has on the analysis of the employer’s right to control. Some federal regulations require certain language to be included in a motor vehicle lease. For example, 49 C.F.R. § 376.12(c)(1) requires the lease to provide that the authorized carrier lessee has exclusive possession, control and use of the equipment and assumes complete responsibility for the operation of the equipment for the duration of the lease. However, the courts have noted that a regulation from that same section provides that nothing in the provisions requiring that lease language is intended to affect whether the lessor or driver provided by the lessor is an independent contractor or employee. 49 C.F.R. § 376.12(c)(4). Therefore, the regulation requiring that lease language does not mandate that the driver is an employee for all purposes. Pursuant to this, Illinois courts have determined that contract language required by federal regulations is only a consideration in determining whether the trucking company had the right to control the driver’s work. Roberson v. Industrial Comm’n, 225 Ill. 2d 159, 866 N.E.2d 191, 310 Ill. Dec. 380 (2007); Ware v. Industrial Comm’n, 318 Ill. App. 3d 1117, 1123, 743 N.E.2d 579, 252 Ill. Dec. 711 (1st Dist. 2000); Earley v. Industrial Comm’n, 197 Ill. App. 3d 309, 318, 553 N.E.2d 1112, 143 Ill. Dec. 126 (4th Dist. 1990).

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Kevin J. Luther

- Partner

Kevin has spent his entire legal career at Heyl Royster, beginning in 1984 in the Peoria office. He has been in the Rockford office since it opened in 1985. Kevin is currently in charge of the firm's workers' compensation practice group. Kevin concentrates his practice in the areas of workers' compensation, employment law, and employer liability. He supervises the workers' compensation, employment law, and employer liability practice groups in the Rockford office. He has represented numerous employers before the Illinois Human Rights Commission and has arbitrated hundreds of workers' compensation claims. He has also tried numerous liability cases to jury verdict. Kevin has co-authored a book with Bruce Bonds of the firm's Urbana office entitled Illinois Workers' Compensation Law, 2009-2010 Edition, which was published by West.* The book provides a comprehensive, up-to-date assessment of workers' compensation law in Illinois. He also is the contributing editor of the Workers' Compensation Report for the Illinois Defense Counsel Quarterly. Kevin is a frequent speaker to industry and legal professional groups. Kevin is a member of the Winnebago County Bar Association in its workers' compensation and trial sections. He is a member of the State Bar of Wisconsin, Illinois State Bar Association, and the American Bar Association, and has actively participated in sections relevant to his practice areas. He is a member of the Illinois Association of Defense Trial Counsel (Board of Directors). Significant Cases • Arlene Bernardoni v. Huntsman Chemical Corp.

- Applied Frye principle to Illinois workers' compensation in the defense of an occupational disease/exposure claim.

• Richard Urbanski v. Deichmueller Construction Co. - Defined jurisdictional issue in workers' compensation review.

Publications • Illinois Workers’ Compensation Law, 2009-2010

ed. (Vol. 27, Illinois Practice Series), published by West (2009)*

• "Economic Disability and Earning Capacity: A Historical Analysis for Wage Differential

Claims," Illinois Defense Counsel Quarterly (2006)

• "The Normal Daily Activity Exception to Workers' Compensation Claims," Illinois Defense Counsel Quarterly (2004)

• "The Age Discrimination in Employment Act: A Seventh Circuit Perspective," Illinois Defense Counsel Quarterly (1998)

• "The Impact of Federal Legislation on the Employer/Employee Relationship in Illinois," Illinois Defense Counsel Quarterly (1996)

• "An Overview of Repetitive Trauma Claims," Illinois Bar Journal (1992)

Professional Recognition • Martindale-Hubbell AV rated • Selected as a Leading Lawyer in Illinois. Only

five percent of lawyers in the state are named as Leading Lawyers.

• Named to the 2009 Illinois Super Lawyers list. The Super Lawyers selection process is based on peer recognition and professional achievement. Only five percent of the lawyers in each state earn this designation.

Professional Associations • Winnebago County Bar Association • Illinois State Bar Association • State Bar of Wisconsin • American Bar Association • Illinois Association of Defense Trial Counsel

(Board of Directors)

Court Admissions • State Courts of Illinois and Wisconsin • United States District Court, Northern and

Central Districts of Illinois • United States Court of Appeals, Seventh Circuit

Education • Juris Doctorate, Washington University School

of Law, 1984 • Bachelor of Arts-Economics and Mathematics

(Summa Cum Laude), Blackburn University, 1981

* For more information, visit the West website at: http://west.thomson.com/productdetail/159286/40843543/productdetail.aspx

Learn more about our speakers at www.heylroyster.com Learn more about our speakers at www.heylroyster.com