What's the Difference Between an Independent Contractor and an Agent?
From an agency law perspective, independent contractors and agents are different in very meaningful ways. When we look at independent contractors and agents; they are to be treated differently as far as the law is concerned. The distinction between the two relationships focuses on the control aspect of the relationship. The general test for agency is one that considers control and mutual consent by a principal. The presence of an agency relationship is tested based on the degree of control and level of consent given by a principal for the agent to act on the principal’s behalf or under the principal’s control. An independent contractor, by contrast, is not controlled by the principal and they have a different relationship. Bear in mind that every state has its own nuanced agency laws. While control and mutual consent are often major parts of any agency rules in a particular state, you need to consult with a local business attorney to address any specific questions you may have.
Control and Agency
In order for someone to be an agent, there must be actions that show the requisite control to make someone an agent. Without enough control, they will instead be categorized as an independent contractor. The primary difference between an agency and an independent contractor is that the principal is not liable for the actions of the independent contractor but may very well be liable for the actions of an agent.
How Can you Tell if Someone is an Independent Contractor?
It is not clear-cut when determining whether someone is an independent contractor or agent. An independent contractor has almost absolute discretion whereas an agent is controlled by the principal. Due to the control of the principal, liability is more fairly attributed to the principal for the agent’s actions. As most business attorneys will tell you, however, there is gray area between the two requiring a factual inquiry and can often lead to litigation. The hard part of distinguishing between the two relationships is that even if you have a contractual independent contractor relationship, the Court can still find that they are an agent. In other words, calling someone an independent contractor in a written document isn’t necessarily a clear cut case. The factual nature of the control within the relationship is a primary consideration. The court will look at all kinds of facts with respect to the relationship and who controls what.
Humble Oil & Refining Co. v. Martin
A good case that introduces the control concept is Humble Oil & Refining Co. v. Martin. Humble was found liable for personal injuries after an automobile accident in which a victim was hit. A car was parked negligently at a Humble gas station and rolled down the hill hitting the victim. A worker at the gas station forgot to set the brake properly. Legal action was initiated against Humble because they contracted with the service station as an independent contractor. The case illustrates important factors when conducting an analysis of independent contractors and liability with control as the determining factor. Even though the case involves independent contractors, agency is still found due to a high degree of control. The court finds an agency relationship because Humble controls enough of what happens in the individual station. They do not have control over every aspect of the day-to-day operations – but had requisite control to make them an agent.
Hoover v. Sun Oil Co
These types of cases crop up from time to time in the franchise arena in particular. One case from Delaware is Hoover v. Sun Oil Co. In this case, we have a similar agreement and circumstances as the Humble case (although Hoover involves a franchise arrangement). The difference is that in Hoover, the court does not find an agency relationship. The court looks at the ability to control the day-to-day operations of a gas station and does not find the requisite level of control to establish agency. At most, this is a good segway into the reality of agency cases involving independent contractors. It is simply not clear when exactly someone transitions from an independent contractor to an agent and court rulings vary from jurisdiction to jurisdiction on this issue.
Murphy v. Holiday Inns, Inc.
Another franchise related case is Murphy v. Holiday Inns, Inc. The Plaintiff slipped and fell at a Holiday Inn because of an air-conditioning unit and is trying to establish an agency relationship to render the franchisor liable. The owner is a franchisee of the Holiday Inn parent company. The court again narrows its focus to the degree of control that Holiday Inn has over this particular hotel. The court finds that the licensing agreement between the two did not establish agency. Notwithstanding the ruling, the case illustrates yet another franchise case with a debate over liability and agency. Holiday Inn could’ve been liable if they controlled the day-to-day operations. While Holiday Inn did set specific standards to be followed, as the Court reviewed what happened under this specific case, the Plaintiff slipped on water from an air conditioning. The question becomes whether or not the principal controls the specific cause of the injury such as controlling the specific air-conditioning standards and The Holiday Inn parent corporation was not responsible for that. This begins to develop into a more sophisticated test than perhaps some previous cases. The court looks at the franchise agreement to see if the franchisor controls the specific cause and does not review control more broadly.
The Difference Between an Agent and Independent Contractor
The reason we point out these three cases in particular is to illustrate the discussion of the differences between agents and independent contractors and how the analysis has evolved. In cases where there is an agent, the principal is generally going to be liable for the agent’s actions absent some exception. With independent contractors, however, the person who the independent contractor is acting on behalf of is not generally going to be liable for the agents actions. The difference between an agent and independent contractor is based on control. It is extraordinarily difficult to know exactly how much control would make a meaningful difference. That’s why this issue is widely litigated. In most cases, the critical facts will involve control over the particular thing that yields liability. Courts think in different ways with respect to the existence of an agency relationship but franchise law has evolved in favor of independent contractors. It is a balance between control and liability.
Chris Sawan holds a JD, MBA and is a CPA with a background that yields itself to some of the most complex legal challenges facing businesses, families, and individuals.
Dennis E. Sawan is licensed to practice law in the States of Florida and Ohio. His experience as a transactional attorney makes him a tremendous ally to have for all types of transactions.
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