Is Actual Control Required for an Employer-Employee Relationship? The Case Law Suggests Otherwise

Posted in: Employment Law

We write to question the NLRB’s premise in its notice of proposed rulemaking that in order to be a joint employer under the National Labor Relations Act (NLRA), an employer “must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment.” The Board acknowledges that its joint-employer standard must be consistent with the common law, as the D.C. Circuit recently reminded the agency in Browning-Ferris Industries of California, Inc. v. NLRB.

The position taken by the current Board and in the proposed rulemaking that direct control is required to find employer status is, in our view, inconsistent with the common law of agency, as is evidenced by the Restatements of Agency as well as treatises and cases published prior to New Deal legislation, which make clear that the contractual reservation of authority is sufficient for finding employer status. In our study of common law precedents, we restrict our analysis to cases decided prior to New Deal legislation, in order to provide insight on the “right to control” element free of the influence of the progressive purposes that may have influenced who may be considered an “employee” under such legislation.

Our review of the common law on employer status begins with the Restatements (First, Second, and Third) of Agency, which state that an employer “employs [an agent] to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.” We then look to two treatises published in the early twentieth century that discuss the employer-independent contractor distinction, the Corpus Juris and Ruling Case Law. The Corpus Juris states that the “relation of master and servant exists whenever the employer retains the right to direct the manner in which the business shall be done, as well as the result to be accomplished,” and the Ruling Case Law describes the test as “the control over the work which is reserved by the employer.”

The question arises whether the tests stated in the Restatements and treatises are mere formulations in these sources or do they reflect actual case holdings? We believe the latter to be the case, as we have found a number of the decisions that clearly hold that actual control is not required for employer status, that contractual reservation of authority is sufficient. We have found no decisions to the contrary. Several of these cases are described below.

In Linnehan v. Rollins, a case cited in the Ruling Case Law, plaintiff brought suit against the owners of an estate after sustaining injuries from a falling derrick allegedly caused by the negligence of a worker whose employer, Elston, had a written contract with defendant owners to take down a house in Boston. The written contract stated that Elston agreed “to take down the entire building . . . or so much thereof as the trustees may request . . . All of said work to be done carefully, and under the direction and subject to the approval of the trustees.” The Supreme Judicial Court of Massachusetts held: “[w]hether an owner of a building retains such control over work to be done and the manner of doing it as to render himself responsible for injuries occasioned by the negligence of a contractor and his employees . . . depends upon the construction to be given to the contract.” The court found the owners liable for plaintiff’s injuries “for the reasons given in the [jury] instructions.” Notably, the jury instructions rejected actual control as a factor for employer status: “there has been evidence introduced upon the one side and the other, as to the actual control which the trustees, through one of their number, exercised over the work . . . [yet] the absolute test is not the exercise of power of control, but the right to exercise power of control.”

In Singer Manufacturing Co. v. Rahn, a case cited in Browning-Ferris, a Minnesota citizen sued a manufacturing company incorporated in New Jersey in federal court for personal injuries allegedly inflicted when she was “run down” by a horse and wagon upon which a Singer sewing machine was attached. The question at issue was whether the driver, Corbett, was an employee under the contract for purposes of determining whether Singer was liable for damages. The contract stated: Corbett “agrees to give his exclusive time and best energies to said business;” and he “agrees to employ himself under the direction of the said Singer Manufacturing Company, and under such rules and instructions as it, or its manager at Minneapolis, shall prescribe.” The U.S. Supreme Court invoked the right to control test, stating that “the relation of master and servant exists whenever the employer retains the right to direct the manner in which the business shall be done, as well as the result to be accomplished.” The Court upheld the lower court’s determination that Corbett was the company’s servant, noting: “the company reserves to itself the right of prescribing and regulating, not only what business he shall do, but the manner in which he shall do it, and might, if it saw fit, instruct him what route to take, or even at what speed to drive.” The Court did not mention actual control or even look for evidence of its existence, instead stating that the case turned “upon the construction and effect” of the contract between Singer and Corbett.

The Supreme Court of Alabama case Norwood Hospital v. Brown was cited by the Browning-Ferris court for the common law rule that “unexercised control bears on employer status.” In Norwood Hospital, the plaintiff alleged that her skin was burned by “regular” hospital nurses applying hot water bottles. For the hospital to be liable for her injuries, the regular nurses had to be employees of the hospital. The court reasoned, “the ultimate question in this connection is not whether the employer actually exercised control, but whether it had a right to control.” The court found, “[p]resumptively the regular nurses, retained and paid by defendant, were servants or employees . . . For aught appearing the hospital authorities, or the physician in charge, had a right to control the work of these nurses down to the last detail. These regular nurses at least were employees, not independent contractors.”

In Plost v. Avondale Motor Car Co., a case cited in the 1953 Appendix to the Second Restatement § 220, a Chevrolet car salesman was driving his Ford car when he struck and injured the plaintiff’s decedent husband, leading to an action for damages against the car company. The Chevrolet loaned to the salesman for making calls was recently “taken back,” and there was no written employment agreement or fixed term of service. The Ohio Court of Appeals stated the test for an employer-employee relationship as whether “it was definitely and specifically a part of the agreement of employment that the principal should have the right to control the physical performance of the representative.” The court held the salesman was an independent contractor: “that the salesman used a Ford automobile, with the knowledge of the defendant, when taking orders for Chevrolet cars would seem to firmly answer any suggestion that the dealer in such Chevrolet cars had any control over the manner in which orders were to be secured for its automobiles.” The court specified that “the criterion of responsibility is not so much whether the principal did control, but whether it was definitely and specifically a part of the agreement of employment that the principal should have the right to control the physical performance of the representative.”

Based on our review of the common law precedents, we conclude that actual control is not required for determining employer status. The pre-New Deal common law regarded the contractual reservation of authority without actual exercise of such authority as sufficient to create an employer-employee relationship. The Board should consider these cases before ruling that the common law requires the actual exercise of control. It is true that common law authorities do not deal with joint employment but it would have to be on some basis other than the common law definition of employer for the Board to require actual control to find joint-employer status.

An abridged version of this article first appeared in Bloomberg Law’s Daily Labor Report on September 25, 2019.

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