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Smith on Independent Contractors

Gordon Smith on the Restatement Third’s approach to the old servant/independent contractor distinction:

If you follow developments in agency law at all, you know that the Restatement (Third) of Agency eliminated “servants.” Courts and commentators have been calling them “employees” for years, anyway, so that change seemed inevitable. But did you know that the Restatement (Third) of Agency also eliminated “independent contractors”? Here is the explanation:

The common term “independent contractor” is equivocal in meaning and confusing in usage because some termed “independent contractors” are agents while others are nonagent service providers. The antonym of “independent contractor” is also equivocal because one who is not an independent contractor may be an employee or a nonagent service provider.

All of this seems right to me, but what are we supposed to call people who aren’t employees?

Did you guess “nonemployees”? That seems perfectly reasonable, until you consider that “nonemployees” doesn’t correct the fundamental problem with “independent contractors,” namely, that within this group are both agents and nonagents.

To cure this ambiguity, the drafters of the Restatement (Third) of Agency opted for two terms: “nonemployee agents” and “nonagents.” Simple.

Actually, I think the drafters got it wrong here. In my short treatise Agency, Partnership & Liabilitiy Companies, I argue that:

There is a growing tendency towards using the terminology of employer and employee rather than master and servant. The Restatement (Third), for example, is doing away with all three of the classic terms—master, servant, and independent contractor—and replacing them with employer, employee, and nonemployee agent. The old distinction between nonservant agents and nonagent independent contractors also is being abolished in favor of the terms nonemployee agent and nonagent service provider.

Admittedly, the terms master and servant are archaic and politically incorrect. The implication of menial service, moreover, is usually erroneous. Yet, it is not clear that employer and employee are an improvement. In particular, both common usage and many legal regimes treat some agents as employees even though they would not be deemed servants under the Restatement (Second) definition. If vicarious liability is grounded in the principal’s ability to control the agent’s physical performance of a task, however, as it has been traditionally, it would seem that something beyond mere fulltime employment must be shown. A growing number of courts, however, seem willing to infer the requisite level of control from the mere fact of fulltime employment. Some courts have even abandoned the control requirement: “Thus in this case where it is agreed that a regular employee is sent upon a specific errand, using his own car with the knowledge and permission of the employer, and it is agreed he was acting within the scope of his employment at the time of the accident, the employer is liable for his acts whether it had control of his detailed operation of the motor vehicle or not.” These courts have gone full circle back to the days of Jones v. Hart. The distinction between independent contractors and servants did not exist until the 1840s, prior to which time a principal was held vicariously liable for the torts of his agents of either type.  The distinction arose, however, precisely because it makes sense to impose vicarious liability only where the principal may exercise its control so as to prevent accidents. By eviscerating the terminological distinction between servants and independent contractors, the Restatement thus may contribute towards this unfortunate trend of treating principals as insurers of their agents.