Texas Home Builder Magazine
May/June 2009

by Walker M. Duke

Building a house takes a team. From architects to plumbers, masons to trim carpenters, it takes a number of different skills and crafts to get the final project finished. In most cases, this involves bringing in subcontractors-and the distinction between contractor and subcontractor is generally clear. Sometimes, however, that line can get blurred.

From a legal perspective, it’s important to know the distinctions between a contractor’s employee and an independent contractor or subcontractor. How an individual worker is classified can have serious impact on a party’s potential liability.

Generally speaking, an employer or contractor is only responsible for the acts and omissions of its employees; the employer is typically not legally responsible for the negligent acts of an independent contractor even though they hired that contractor.

This, of course, begs the question of what exactly an independent contractor is. That distinction is easy to recognize in some instances, such as where Company A hires Company B to perform all the electrical work on a project. Company B would clearly be an independent contractor. Where things get a little more confusing is when Company B, which is running a little short on manpower, brings in Joe Electrician to help on this one project.

Is Joe an independent contractor or an employee of Company B? The issue gets even more muddied when Joe sticks around with Company B for a few more projects. Suddenly, he doesn’t look that much different than Company B’s employees.

Under Texas law, an independent contractor is one who, in the pursuit of an independent business, does specific work for others while using his own means and methods. They perform this work without submitting themselves to the control of the person for whom the work is being done.

The standard to determine whether a person is an employee or independent contractor is the amount of control that the employer exercises over the details of the work. There are five main factors used to assess the amount of control retained by the employer:

  1. The independent nature of the worker’s business;
  2. His obligation to furnish the necessary tools, supplies and materials to perform the job;
  3. His right to control the progress of the work except as to final results;
  4. The time for which he is employed; and
  5. Whether he is paid by time or by job.

Contrary to popular belief, withholding taxes (or the refusal to do so) is not a determining factor.

A contractor is generally liable only for its failure to exercise reasonable care in supervising a subcontractor’s activity if the contractor retains some right of control over the subcontractor’s work. There are, of course, a few exceptions to the general rule where a contractor is not liable for the negligent acts of a hired independent contractor, such as in the case of inherently dangerous activities and illegal activities.

If Joe Electrician’s work is defective or causes an accident, the distinction between employee and independent contractor becomes critical because it could be a determining factor in Contractor B’s liability. Contractor B will not be liable if Joe is an independent contractor. The company could, however, be on the hook for damages if it maintained enough control for Joe to be considered an employee.

At this point, Contractor B’s principles might be thinking they would prefer everyone to be independent contractors instead of employees to avoid potential liability. There are both advantages and disadvantages to this. On the one hand, should Joe Electrician cause an accident as an independent contractor, Contractor B would not be liable for his negligence. However, if Contractor B’s negligence injured Joe, then Contractor B would be liable for Joe’s damages and could be the subject of a lawsuit.

That would not be the case if Joe were an employee of Contractor B and Contractor B was a workers’ compensation subscriber. The Texas Labor Code establishes that, for employees covered by workers’ compensation insurance, the recovery of workers’ compensation benefits is the exclusive remedy against the employer for a work-related injury or death. In other words, Joe would be limited to workers compensation benefits. He could not then sue his employer, Contractor B, even if Contractor B’s negligence caused his injury.

The last thing any builder wants to find out is that the company may be legally responsible for a major project mistake or accident caused by another. Knowing the distinction between an employee and independent contractor in advance will help builders structure their workforces in a way that will allow them to manage potential liabilities and further their business objectives.

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