A contractor is a business or entity that agrees to perform work under terms of a contract. Contractors are distinct from employees in that they are generally in charge of how work will be performed and are obligated to provide a specified result for the employer.
The distinction between an employee and contractor is sometimes the issue of legal disputes because of the tax and benefits implications that a worker's status carries. Additionally, under tort law, liability may also be imposed on the employer vicariously for wrongdoings of employees. However, employers of contractors are generally exempt from the wrongdoings of contractors so long as they conducted reasonable diligence when hiring the contractor. Irrespective of intent or titles, courts may find an employer-employee relationship based on the circumstances of the relationship.
Indeed, jurisdictions have tests for determining whether parties are employees or contractors that tend to focus on which party ultimately controls how the work is done. For example, New Jersey courts have articulated both the "control test" and "relative-nature-of-the-work test." Under the control test, courts look to whether the employer had the "right to direct the manner in which the business or work shall be done, as well as the results accomplished."
However, where the control test is not itself a dispositive factor, courts also look to the relative nature of the work test and determine whether: (1) the work performed by the worker was an integral part of the employer's business; and (2) whether the worker demonstrated substantial economic dependence upon the employer.
(See, e.g., Auletta v. Bergen Ctr. For Child Dev., 769 A.2d 1095 (App. Div. 2001).)
Similarly, California has established a test, stating that a hired entity is an employee unless: (1) the worker is free from the control and direction of the employer in connection with the performance of the work; (2) the work performed is outside the usual course of the employer's business; and (3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the employer.
[Last updated in December of 2021 by the Wex Definitions Team]
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