Distinguishing employees from independent contractors is a perennial issue for employers and courts alike. The Michigan Court of Appeals’ opinion in Elde v Castles Brothers, Inc, provides additional guidance on what makes a worker an “employee” under Michigan’s Worker’s Disability Compensation Act—even when that worker is listed as self-employed on 1099 tax forms. The panel focused on the following facts, all of which were derived from the text of the WDCA: the plaintiff received the majority of his compensation from the defendant for eighteen years, he did not maintain a separate business, and he had no employees of his own. In addition, the plaintiff neither rendered services to the public nor held himself out as doing so. Elde demonstrates, therefore, that the WDCA requires courts to focus on the substance of the worker/employer relationship rather than labels.
Elde was a kitchen and bathroom remodeler. Castles Brothers provided him with the details for each job, and Elde submitted time sheets for his work. He would get his materials from Castles Brothers, and would alternate between using his own truck and tools and using those of Castles Brothers. Almost all of his income came from Castles Brothers, with the exception of a few projects he completed for friends and modest income and benefits from work at his church. He neither advertised his remodeling business nor had his own employees. On the other hand, Elde’s hours at Castles Brothers were neither required nor guaranteed. Castles Brothers required Elde to maintain commercial general liability insurance, which he procured as a sole proprietor, and he was paid wages with 1099 tax forms listing him as self-employed.
When Elde injured his back while working at a job for Castles Brothers, he filed an application for mediation or hearing with the Workers’ Compensation Agency. The magistrate concluded that Elde was Castles Brothers’ employee under the WDCA and both the Workers’ Compensation Appellate Commission and the Michigan Court of Appeals affirmed this decision.
The Michigan Court of Appeals focused on the WDCA’s definition of an “employee.” Under the WDCA, an “employee” is every person in the service of another, under any contract of hire, either express or implied “performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, if the person in relation to this service does not maintain a separate business, does not hold himself or herself out to and render service to the public, and is not an employer subject to [the WDCA].” All of these factors were present in Elde. The panel noted that Elde’s receipt of 1099 forms was a relevant factor and one that could support a finding that he was an independent contractor. But the WDCA’s definition of an “employee” fit and, ultimately, was controlling.