The issue of classifying an individual worker asan “employee” or an “independent contractor” is an important one in many contexts. In the context of unemployment insurance, this distinction determines whether an individual is entitled to unemployment insurance and whether an employer is responsible for paying into that fund.
The test used to make that classification varies from one context to another and among various statutes. In order to determine whether services performed for an employer are those of an independent contractor or employee pursuant to the Michigan Employment Security Act (“the Act”), Michigan uses the “economic reality test.” The court in Tata v. Muscovitz, 354 Mich. 695 (1959) adopted the “economic reality test” as a majority position in Michigan, discarding the traditional master-servant “control test” utilized previously. The test was further refined in McKissic v. Bodine, 42 Mich.App. 203 (1972), by articulating eight factors to apply to a set of facts to determine the worker’s status. The eight factors are:
- The employer will incur liability if the relationship terminates at will;
The work performed is an integral part of the employer’s business;
- The employee primarily depends upon the wages for living expenses;
- The employee furnishes equipment and material;
- The employee holds himself out to the public as able to perform certain tasks;
- The work involved is customarily performed by an independent contractor;
- The factors of control, payment of wages, maintenance of discipline, and the right to engage or discharge employees; and
- Weighing those factors which will most favorably effectuate the purposes of the Act.
To further understand factor #8, the purpose of the Act is stated as follows:
The legislature acting in the exercise of the police power of the state declares that the public policy of the state is as follows: Economic insecurity due to unemployment is a serious menace to the health, morals, and welfare of the people of this state. Involuntary unemployment is a subject of general interest and concern which requires action by the legislature to prevent its spread and to lighten its burden which so often falls with crushing force upon the unemployed worker and his family, to the detriment of the welfare of the people of this state. Social security requires protection against this hazard of our economic life. Employers should be encouraged to provide stable employment. The systematic accumulation of funds during periods of employment to provide benefits for periods of unemployment by the setting aside of unemployment reserves to be used for the benefit of persons unemployed through no fault of their own, thus maintaining purchasing power and limiting the serious consequences of relief assistance, is for the public good, and the general welfare of the people of this state.
An Administrative Law Judge making a determination (or redetermination) will weigh the evidence as it applies to each of the eight factors and decide whether each factor predominates in favor of a finding that a worker is an employee or an independent contractor.
By Michelle Landis