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Participation as a theory of employment.


The concept of employment is an important legal category, not only for labor and employment law, but also for intellectual property law, torts, criminal law, and tax. The right-to-control test has dominated the debate over the definition of "employee" since its origins in the master-servant doctrine. However, the test no longer represents our modern notion of what it means to be an employee. This change has played itself out in research on the theory of the firm, which has shifted from a model of control to a model of participation in a team production process. This Article uses the theory of the firm literature to provide a new doctrinal definition for "employee" based on the concept of participation rather than control. The participation test better delineates the boundaries of employment and provides a framework for addressing the stresses on firms and workers that are rife within the modern economy.


The concept of employment plays an important role across the legal landscape. Most obviously, labor and employment law protections provided under local, state, and federal law are limited to those contracting parties that are defined as employees. (1) However, many other areas of law draw distinctions based on the fact that the actor was an employee, or that the actions were taken within the scope of employment. Common law doctrines or statutory provisions in intellectual property, (2) criminal law, (3) torts, (4) and tax (5) use the concept of employment in assigning critical rights and liabilities. Although these regimes are not generally thought of as labor and employment law, they invest the employment relationship with even further legal meaning.

Because the same concept of "employment" is used across legal contexts, one's intuition is that the concept would remain largely consistent even in its variegated uses. And this has largely been true. The concept of control has served as the unifying idea behind the use of "employee" and "employment" in different contexts. (6) The common law "control test" comes out of the original conceptions of master and servant from pre-industrial English law, and the Supreme Court has used this test as the default definition of the term "employee" in federal statutes. (7) However, the control test is not the unanimous answer, and in fact it may be losing its firm grip on the category. Courts have long used the "economic realities" test in interpreting the broader definition provided under the Fair Labor Standards Act (FLSA). (8) In addition, the D.C. Circuit recently installed an "entrepreneurial opportunities" test that has received support from the Restatement (Third) of Employment Law. (9) Foreign jurisdictions have looked to the concept of "economic dependence." (10) Other jurists and scholars have argued that there should not be any one definition of employment, and that instead the term should be adapted to fit the needs of the particular statutory, regulatory, or common law regime. (11)

This Article argues that there is a consistent meaning to the idea of employment, but it is not the control test. The meaning comes not from looking at employees but rather at the firm that employs them. Ever since Ronald Coase's The Nature of the Firm, (12) economists and legal scholars have puzzled over why the law created firms that stand outside the market. The purpose of firms, Coase famously answered, is to avoid transaction costs by allowing the parties to organize in a hierarchical manner without the need for prices or specific contracts. (13) As Coase put it: "If a workman moves from department Y to department X, he does not go because of a change in relative prices, but because he is ordered to do so." (14) Less well known is that Coase then looked to the legal definition of employee to determine whether his transaction costs theory was supported in practice. (15) He found that it was. Since the "control" test was based on the employer's ability to require its employees to take specific actions, he concluded, "[w] e thus see that it is the fact of direction which is the essence of the legal concept of 'employer and employee,' just as it was in the economic concept which was developed above." (16)

Coase's approach to the theory of the firm was only the beginning. In fact, Armen Alchian and Harold Demsetz famously rejected Coase's workman example. (17) Scholars have continued to place importance on the role of employees within the firm in defining what a firm is and why it has independent existence. (18) This rich literature, however, has been largely ignored when it comes to defining the concept of employment. (19) This Article seeks to correct that failing. The theory of the firm contains a critical insight: the idea of employment is based not on our notions of employees, but rather on our notions of employers. There can be no employee without an employer. (20) The theory of the firm literature demonstrates that the employer is a firm, and that the concept of employment is critical in determining what a firm is and why it continues to exist.

Using the theory of the firm literature to demarcate the boundaries between employee and independent contractor may appear at first to be a tedious and inconsequential exercise. But its theoretical and practical implications are massive. The sociological stability of the employment relationship has seen significant erosion, as more companies seek to outsource their chain of production and more workers enjoy only temporary employment. (21) At the same time, nationwide firms are placing greater importance on their economic brands, and employees are critical representatives of their companies when it comes to their brand's value and influence. (22) We grow closer to a potential "death of employment" (23) at the same time that multinational corporations have more economic power (and employees) than ever. These pressures ask us to consider what, if anything, about the concept of "employment" is worth saving.

This Article argues that the proper definition of employee is not the control test, the economic realities test, or the entrepreneurial opportunities test. Instead, the concept of employment has in fact been and should henceforth be used to differentiate between members and nonmembers of an economic firm. In other words, employees are participants in a common economic enterprise organized into a business entity. This participation-based definition provides the best rationale for the use of the "employee" category in areas of law such as intellectual property, tax, and torts. Moreover, the participation theory explains why labor and employment law protections are based on employment status: these protections are designed to make firms more economically responsible for their participants. Because employees participate in the common economic enterprise as organized into a firm, the firm in turn must take care of its employees within that common enterprise.

Part I of the Article examines where (and why) the concepts of "employee" and "employment" are used within the law. Part II sets out the different doctrinal definitions of the terms "employee" and "scope of employment," and also examines the theories behind these definitions. Part III provides an overview of the theory of the firm literature and the role of employees within that literature. Part IV uses the theory of the firm to develop a new definition of employment within the law based on participation. Finally, Part V briefly considers the future of the concept of "employment" in the law.


The role of "employment" within the law extends beyond the easily identifiable categories of labor and employment law. This Part examines the role that employment serves in defining a variety of legal regimes.

A. Labor and Employment Law

Lawmakers have used the concept of employment to create a set of rights within the law that provide protections to those defined as employees. Prohibitions against race, sex, age, and disability discrimination, (24) below-minimum wages, (25) dangerous working conditions, (26) retirement funding requirements, (27) and attacks on collective activity, (28) among others, (29) are limited to employees. State employment provisions such as workers' compensation and unemployment compensation are also limited to employees. These statutory schemes are designed to provide protections to employees as employees and not to any other groups, even if those outside the employee category might benefit from the scheme.

Along with using employment to define vicarious liability (discussed below in Part B), the common law also has certain doctrines that are limited to employment. The tort of wrongful discharge, for example, provides rights to employees--not independent contractors. (30) And employment at-will is a common law doctrine that is arguably separate from the traditional set of rules for contract interpretation. (31) In addition, under agency law employees have a fiduciary duty of loyalty to their employers. (32) This duty generally requires the employee not to compete directly with the employer while still an employee. (33)

B. Vicarious Liability in Tort

The concept of employment is used as the basic dividing line in the doctrine of respondeat superior. An employer is liable for the acts of its employees committed within the scope of employment, but it is generally not liable for the acts of independent contractors that are working with it. (34) Respondeat superior has its roots in early master-servant doctrine, in which a master was liable for harms caused by the actions of his servant. (35) The doctrine continues in the modern common law, with most courts using the term "employee" in place of "servant." Although many different justifications for the doctrine have been given, most center around the responsibility for or control of the employer over the employee. (36) Employers can also be liable for the torts of independent contractors, but generally only under one of three conditions: (1) the employer is negligent in "selecting, instructing, or supervising the contractor;" (2) the employer has a nondelegable duty of care to the public as a whole or the particular plaintiff; or (3) the work done by the contractor for the employer is "specially" or "inherently" dangerous. (37) United States common law used to follow the "fellow servant" rule, in which the employer was absolved of liability to an employee for an injury caused by a fellow employee. (38) However, this rule has generally been abolished and/or rendered obsolete by workers' compensation statutes. (39)

C. Criminal Liability

Business organizations may be criminally responsible, as well as liable in tort, for the misdeeds of their employees under the doctrine of respondeat superior. (40) Corporations and other business entities are guilty of crimes committed by their employees if such crimes were committed in the scope of employment. In order to satisfy the mens rea requirement, courts have additionally required that the employee have acted with the intent to benefit the business entity. (41) Although the doctrine has faced steady criticism over the years, it has become "firmly entrenched as, more or less, the across-the-board rule of enterprise liability for all manner of crimes." (42) However, the de jure rule masks a more complex reality. Courts and prosecutors have in practice adopted a narrower standard of liability when it comes to institutional guilt. At the front end, a series of Department of Justice memos over the last decade chronicled the attempts to demarcate when corporations should be charged with crimes. (43) All of these guidelines required more than mere respondeat superior liability. (44) At the back end, the U.S. Sentencing Guidelines assessed punishment for corporate guilt based on whether "an individual within high-level personnel of the unit participated in, condoned, or was willfully ignorant of the offense; or tolerance of the offense by substantial authority personnel was pervasive throughout such [entity]." (45) Commentators have noted a change from vicarious liability to more of a negligence standard as to corporate management's role in overseeing internal investigations. (46) This move has had both supporters and critics. (47) However, the prevalent criminal liability rule remains based on respondeat superior.

D. Intellectual Property

The term "intellectual property" refers to a wide range of information to which specific legal rights have attached. In some cases, intellectual property is generated by a single individual: an author writing alone in her home, or an inventor toiling away in the garage. However, in many cases, intellectual property is generated by specific individuals who are working within the context of a larger firm. How the rights to that "property" are divvied up has significant legal and economic ramifications, particularly for firms and individual employees. (48)

Federal law establishes ownership rights for copyrighted works. The "work-for-hire" doctrine was originally established in the 1909 Copyright Act, as that law specified that the author of a copyrighted work "shall include an employer in the case of works made for hire." (49) The Copyright Act of 1976 continued this doctrine, specifying that the employer is considered the author of any work made for hire unless expressly agreed otherwise. (50) The 1976 Act defines "work made for hire" as "a work prepared by an employee within the scope of his or her employment." (51) This rule of ownership can only be altered by a signed, written document that expressly changes it. (52)

The default rule for patent law is that the employee who invents the patent is the author, not the employer. (53) However, the employer is free to contract with employees explicitly for the rights to all inventions created within the scope of employment. Even without an explicit contract, judges have found something akin to a work-for-hire doctrine when an employee is hired to work on a specific invention or problem; courts are more likely to conclude that the employee was hired to invent and therefore the firm owned all patents through an implied contract. (54) In addition, under the shop-right doctrine, employers enjoy a nonexclusive right to use the patent without having to compensate the employee. A shop right arises when the employee has created the invention on the job using the employer's materials. (55)

Trademark presents a special connection among the firm, its employees, and intellectual property. Trademark protection enables a group of people to join together and be recognized as a common enterprise without fearing that their brand name and reputation will be poached by outsiders. Just as patent and copyright protections concern the allocation of information rights between employee and firm, trademark concerns the allocation of good will and reputational rights between employee and firm. (56) Trademarks enable firms to use and transfer reputational assets over to the firm, and thus deprive individual employees of their ability to hold up the firm or exploit the trade dress separately. (57)

Finally, trade secret law allocates the ownership of softer intellectual capital between employees and the firm. The Uniform Trade Secret Act defines misappropriation of a trade secret as acquiring the trade secret either by improper means or "under circumstances giving rise to a duty to maintain its secrecy or limit its use." (58) Although the Act applies to any "person," (59) employees in particular are expected to keep confidential any of the employer's trade secrets to which they are exposed during the course of employment. (60) Indeed, employees are primary targets for the protections against trade secret misappropriation. A study of trade secret litigation found that over eighty-five percent of trade secret cases involved alleged misappropriators who were either current or former employees or business partners. (61) Employees are generally presumed to have an implied duty to keep any trade secrets to which they are exposed confidential. (62) Moreover, the doctrine of "inevitable disclosure of trade secrets" has applied in some jurisdictions to employees who leave the company but (according to the court) must inevitably use the trade secrets they have learned at their old position. (63)

E. Tax

Firms are expected to differentiate between employees and independent contractors over a host of provisions, including whether taxes need to be withheld, (64) whether the firm must pay a share of Social Security and Medicare (FICA) (65) and unemployment (FUTA) taxes (66) for the worker, and whether the workers count as employees for benefit plan purposes. (67) The IRS defines employees based on the common law control test. (68) The consequences of a misclassification can be extremely costly, as the business is then subject to the mandatory back-tax formula. (69) In fact, Congress was moved to create a "safe harbor" for employers when it came to the employee-independent contractor distinction. (70) The upshot of these requirements is to give the firm tax responsibilities for its employees, while giving independent contractors tax responsibilities for themselves.


The categories of "employee" and "the scope of employment" define certain contours within various areas of the law. For many statutory schemes, the "employee" category does all of the work; once the identity of the person as an employee has been established, that person is entitled to the fights conveyed upon employees and can bring claims for violations of those rights. In other areas of the law, however, the person and the context are relevant to establishing the legal category; therefore, both "employee" and "scope of employment" are necessary to establish. Both categories are considered below.

A. Defining "Employee"

1. The Common Law "Control" Test

The "control" test is the dominant standard for employment, both nationally and internationally. (71) The test finds its historical roots in the definition of "servant" in English common law. William Blackstone describes the relationship between master and servant as one of the three "great relations in private life," along with husband and wife and parent and child. (72) The relationship was used primarily not for contractual purposes, but rather to establish the duties each owed to the other and to establish when a master was liable for the actions of the servant. The master was certainly liable if the servant committed the act "by the command or encouragement of his master," (73) but liability extended beyond such direct orders. Blackstone offered the following example and justification: "If an innkeeper's servants rob his guests, the master is bound to restitution: for as there is a confidence reposed in him, that he will take care to provide honest servants, his negligence is a kind of implied consent to the robbery...." (74)

Under what circumstances would one who contracts for labor be liable for the acts of the laborer? Respondeat superior does not apply generally to the agency relationship; such vicarious liability is reserved for the master-servant relationship. (75) English courts based the definition of this relationship on the notion of control. The basics of the control test are straightforward. A servant is one who is "under the duty of rendering personal services to the master or to others on behalf of the master." (76) In addition, the master must have the "fight to control the servant's work," which means "being entitled to tell the servant when to work (within the hours of service) and when not to work, and what work to do and how to do it." (77) This right of control is what separates the master-servant relationship from the principal-agent relationship.

The Restatement (Second) of Agency is perhaps the most widely recognized source in American law for the principal-agent and master-servant doctrines. (78) Section 220 defines a servant/employee as: "a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other's control or right to control." (79) As the commentary acknowledges, however, this relationship is "one not capable of exact definition." (80) The Restatement provides a ten-factor test to further determine whether the potential master/employer is exercising control:

(a) the extent of control which, by the agreement, the master may exercise over the details of the work;

(b) whether or not the one employed is engaged in a distinct occupation or business;

(c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;

(d) the skill required in the particular occupation;

(e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;

(f) the length of time for which the person is employed;

(g) the method of payment, whether by the time or by the job;

(h) whether or not the work is a part of the regular business of the employer;

(i) whether or not the parties believe they are creating the relation of master and servant; and

(j) whether the principal is or is not in business. (81)

Master-servant doctrine makes no exceptions or differentiations based on the relative status of the "servant" vis-a-vis the "master." It may seem that high-ranking employees would not meet the test, as their actions are not controlled in the same way as rank-and-file workers. However, no such exception exists. Instead, control "indicates the closeness of the relation between the one giving and the one receiving the service rather than the nature of the service or the importance of the one giving it." (82) Accordingly, "ship captains and managers of great corporations are normally superior servants, differing only in the dignity and importance of their positions from those working under them." (83) The Restatement (Third) of Agency uses the same example but frames the justification a bit differently:
 In some employment relationships, an employer's right of control
 may be attenuated. For example, senior corporate officers, like
 captains of ships, may exercise great discretion in operating the
 enterprises entrusted to them, just as skilled professionals
 exercise discretion in performing their work. Nonetheless, all
 employers retain a right of control, however infrequently
 exercised. (84)

The Supreme Court has made the common law "control" test into the default definition for "employee" whenever used without further explanation in a federal statute. In Community for Creative Non Violence v. Reid, (85) the Court said that "[i] n the past, when Congress has used the term 'employee' without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common-law agency doctrine." (86) It further found it appropriate to rely on the general common law of agency, rather than the doctrine of any particular state, in order to create a national, uniform law of copyright, and it based its definition on the Restatement (Second) of Agency's test. (87) The thirteen factors used in Community for Creative Non-Violence to illustrate the common law test largely come from the Restatement (Second) of Agency's ten-factor test. (88)

The factors have been applied in the labor and employment context as well. The Employee Retirement Security Act's (ERISA) nominal definition of "employee" is "any individual employed by an employer," without any further direction. (89) Following Community for Creative Non-Violence, the Supreme Court adopted the common law test and cited to the thirteen-factor test provided in that decision. (90) While acknowledging that "the traditional agency law criteria offer no paradigm of determinacy[,]" the Court argued that the common law test "generally turns on factual variables within an employer's knowledge" and comports "with our recent precedents and with the common understanding, reflected in those precedents, of the difference between an employee and an independent contractor." (91) The Court rejected the lower court's definition, which was similar to the "economic realities" (92) test, because it found that ERISA's statutory definition was not equally expansive, as it did not include "suffer or permit to work." (93)

The federal employment antidiscrimination statutes--Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA)--all share the same definition of employee as ERISA: "an individual employed by an employer." (94) Up until the Supreme Court's decision in Darden, circuit courts had applied different tests to determine employee status. Some applied the common law test, (95) some the economic realities test, (96) and some a hybrid test looking at both control and economic realities. (97) After the Court's holding in Darden, circuit courts largely saw the writing on the wall and applied the common law test to antidiscrimination statutes. (98) The Supreme Court confirmed this approach in Clackamas Gastroenterology Associates v. Wells, (99) which applied the common law test and cited to Darden. (100) Thus, the common law test has now been ensconced. (101) The Court specified that "[w] e think that the common-law element of control is the principal guidepost that should be followed in this case." (102) OSHA offers its statutory protections to "employee [s] of an employer who is employed in a business of his employer which affects commerce." (103) Given the similarities between this definition and the definition used in ERISA and the antidiscrimination statutes, it seems almost indisputable that the common law agency test should apply. This has been the administrative conclusion. (104) However, at least one court continued to apply the "economic realities" test post-Darden, finding the analysis to be the same under both tests. (105)

The National Labor Relations Act (NLRA) does not itself provide a definition of the term "employee"; instead, the statute simply provides a laundry list of exclusions. (106) The Act did not originally exclude independent contractors, and both the National Labor Relations Board and the Supreme Court originally held that so-called "newsboys" were statutory employees for purposes of the Act, even though they were considered independent contractors. (107) However, Congress rejected this interpretation of the Act and added independent contractors specifically to the list of excluded categories. (108) The Board then adopted the common law right-to-control test in excluding independent contractors. The Supreme Court sanctioned this test in NLRB v. United Insurance Co. of America, (109) making clear that the Board had a range of discretion in implementing the test.

The Board has had occasion to rule on employee status in a variety of contexts: newspaper carriers, (110) nightclub performers, (111) gas station operators, (112) and novelty vendors. (113) It has taken care to emphasize that the common law agency test, although often called the "control" test, has many factors in play beyond control. Thus, while control may be important in determining employee status, it is not the controlling factor. Instead, the variety of factors listed in Restatement (Second) of Agency [section] 220 are to be considered. (114) And although it is not specifically part of the list of factors in [section] 220, the Board has used the presence of entrepreneurial opportunities as another factor in evaluating the independence of the workers. (115) The Board has rejected the addition of the FLSA's "economic dependence" or "economic realities" test, (116) however, despite a recent dissent. (117)

Despite the doctrinal popularity of the "control" test, (118) it remains something of an enigma. Courts and commentators continue to bemoan its inability to deliver clear answers. (119) In its initial rejection of the control test in the context of the NLRA, the Supreme Court said that "the assumed simplicity and uniformity, resulting from application of 'common-law standards,' does not exist." (120) Perhaps more fundamentally, there is a concern that the idea of control is not the proper proxy for the concept of employment. For some courts and commentators, "control" is too expansive a term, going beyond the root notion of supervision that represents the employment relationship. (121) For others, control is no longer critical to employment, but rather an expression from a bygone era. (122) Several other alternatives have arisen from various areas of the law to try to take at least some share of the control test's domain.

2. The "Economic Realities" Test

The primary alternative to the control test, particularly in the realm of employment law, is the "economic realities" or "economic dependence" test. It is generally interpreted to provide a more expansive definition to the term "employee," (123) one that covers more vulnerable workers who may have some aspects of separation from the firm but lack true economic independence. It has its roots in the interpretation of critical New Deal statutes soon after their passage. (124) While clearly rejecting the common law control test, these cases did not craft a specific and readily cognizable alternative. Instead, they looked to the purpose of the statutes and attempted to glean an approach that harmonized with that purpose. Interpreting the NLRA, the Court noted that it was "not necessary in this case to make a completely definitive limitation around the term 'employee.'" (125) But the Court did distinguish between the traditional common law definition and a broader perspective based on the ills at which the statute was directed. In other words, the term "employee" was "to be determined broadly, in doubtful situations, by underlying economic facts rather than technically and exclusively by previously established legal classifications." (126) That reference to "economic facts" became "economic reality" in later cases defining the category of "employee" in the context of the Social Security Act (127) and the Fair Labor Standards Act (FLSA). (128) This test--lacking any factors or even specific doctrinal definition--was something of a gestalt or eyeball standard, designed to look at the overall economic relationship and determine whether Congress intended such a relationship to come under the purview of the particular statutory scheme.

Although the Court's "economic reality" definition was overturned by statutory amendments to both the NLRA (129) and the Social Security Act, (130) it has remained in place with regard to the FLSA. That statute's definition of employee is the circular one found in many statutes: "the term 'employee' means any individual employed by an employer." (131) However, the Act also defines "employ" to include "suffer or permit to work." (132) Because employ is defined differently and more broadly, the Supreme Court has recognized that the FLSA may extend to cover workers beyond the reach of the common law agency test. (133) The definition of "employee" under the FMLA incorporates the standard from the FLSA by reference, (134)and thus courts have applied the same "economic realities" test. (135) Outside of these contexts, however, the Supreme Court has made it clear that the "control" test is to apply as the default rule. (136)

According to the "economic realities" test, "employees are those who as a matter of economic reality are dependent upon the business to which they render service." (137) Courts have generally looked to a number of factors in calculating coverage under the "economic realities" test. One popular test, developed in Bonnette v. California Health & Welfare Agency, (138) asks whether the employer: "(1) had the power to hire and fire the employee; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained employment records." (139) Other circuits have more closely mirrored the control test. (140) But in recognition of the FLSA's broader coverage, courts have either implicitly or explicitly looked to the "reality" of the worker's dependence on the putative employer. (141) Such dependence is often manifested through the economic weakness of the workers, and the focus on economic reality is meant to cut through formalistic trappings to get at the heart of the relationship. (142) In Secretary of Labor v. Lauritzen, (143) for example, the court held that migrant workers on a pickle farm were employees because they "depend on the [employer's] land, crops, agricultural expertise, equipment, and marketing skills. (144)

Some commentators have argued that the economic realities test should replace the control test, because its focus on economic dependence provides more protection to vulnerable workers. (145) However, in the United States the test has thus far remained limited to the FLSA and FMLA. The concept of dependency has been more successful in foreign jurisdictions, which have adopted concepts such as "dependent contractors" and "employee-like" persons in certain worker-protection regimes. (146) In the United Kingdom, for example, several employment law regimes have expanded to include those working relationships "whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual." (147) At present, the extended protections include minimum wage requirements, overtime limitations, grievance processes, and restrictions on wage deductions. (148) However, the definition of "worker" has only extended these protections to an additional set of laborers; it has not replaced the concept of "employee" in the law.

3. The "Entrepreneurial Opportunities" Test

Despite the Supreme Court's explicit approval of the common law agency test in the context of the NLRA, the D.C. Circuit appears to have adopted a new test based on the "entrepreneurial opportunities" afforded to workers. The circuit first adopted this test in Corporate Express Delivery Systems v. NLRB, (149) in which it held that the determination of employee status should "focus not upon the employer's control of the means and manner of the work but instead upon whether the putative independent contractors have a significant entrepreneurial opportunity for gain or loss." (150) The court justified the shift on the following grounds:
 [T]he latter factor better captures the distinction between an
 employee and an independent contractor. For example, as the Board
 points out, "the full-time cook is regarded as a servant [rather
 than as an independent contractor] although it is understood that
 the employer will exercise no control over the cooking." Similarly,
 a corporate executive is an employee despite enjoying substantial
 control over the manner in which he does his job. Conversely, a
 lawn-care provider who periodically services each of several sites
 is an independent contractor regardless how closely his clients
 supervise and control his work. The full-time cook and the
 executive are employees and the lawn-care provider is an
 independent contractor not because of the degree of supervision
 under which each labors but because of the degree to which each
 functions as an entrepreneur--that is, takes economic risk and has
 the corresponding opportunity to profit from working smarter, not
 just harder. (151)

In FedEx Home Delivery v. NLRB, (152) the circuit confirmed this new "entrepreneurial opportunities" test as the proper standard for evaluating employee status. The majority retained the common law agency test as the proper standard, but argued that entrepreneurial opportunity was "an important animating principle by which to evaluate [the common law agency] factors." (153) The court explicitly rejected control as the primary factor, citing its indefiniteness as well as its failure to capture the essence of employee status. (154) The dissent found that the majority's "entrepreneurial opportunities" test failed to follow the Supreme Court-approved common law test, (155) a contention supported by other commentators. (156)

4. The "Entrepreneurial Control" Test

The Restatement (Third) of Employment Law has adopted a variation of the "entrepreneurial opportunities" test by defining "employee" as one who works in the interests of the employer when "the employer's relationship with the individual effectively prevents the individual from rendering the services as part of an independent business." (157) The Restatement further refines this as follows: "An individual renders services as part of an independent business when the individual in his or her own interest exercises entrepreneurial control over the manner and means by which the services are performed." (158) The Restatement commentary agrees with the FedEx court that the common law right-to-control test "looks not only to the principal's control of the physical details of how the service provider performs the work but also to other factors relevant to whether the service provider has entrepreneurial control over the manner and means by which the services are performed." (157) Thus, while both the D.C. Circuit and the Restatement focus on entrepreneurialism, the court's "entrepreneurial opportunities" test focuses on whether employees have a legal right to pursue economic gain outside of the relationship. The Restatement's test, on the other hand, looks at the degree of entrepreneurial control exercised by the parties within the relationship. (160)

5. The Purpose Test

Finally, one definition of employment has sought to look past the category itself and instead focus on the underlying purpose of the statutory or common law scheme at issue. As one commentator has asked: "[W]hy should employee status matter at all?" (161) Instead of creating a category of "employee" that applies in a variety of different situations, critics contend that courts, regulators, and legislators should focus on the particular purpose of a particular legal regime and should tailor coverage to meet that purpose. In discussing the statutory definition of employee within the FLSA, Judge Easterbrook argued that the statutory purposes of that statute were quite different from the common law concerns at issue in the control test. (162) Instead of having a uniform definition across legal regimes, it would be more appropriate, argued the judge, to develop definitions based on the functions of the particular law.

Although the functional approach has intuitive appeal, it has not gained a foothold in the law. In its initial interpretations of "employee" under the New Deal statutes, the Supreme Court began by using the functional approach. (163) However, Congress soon moved to amend both the NLRA and the Social Security Act to reinstate the common law control test. (164) The deeper theoretical problem for the functional or purpose test is its abandonment of any common notion of employment. If certain regimes are based on the notion of "employee" to determine the extent of coverage, then arguably the concept of employment is part of the overall system of regulation. The purpose-oriented approach seeks to deny, to a greater or lesser extent, the theoretical basis for this commonality. And yet the concept of employment retains rhetorical and policy force. Indeed, even proponents of the function or purpose test concede that Congress has continually gone back to the "employee" category to shape the contours for various areas of the law. (165) Accordingly, the biggest problem for a truly purpose-oriented theory of employment is that it has no theory of employment at all.

One variation on the purpose test is to construct a hybrid version in which a core notion of employment is matched with various additions to the definition depending on the context. (166) The United States has a limited version of this approach, as the common law definition is widely used, but the FLSA and FMLA expand to protect a wider range of workers based on the notion of dependency. But even such flexible approaches need a core vision of employment to provide consistency amidst the permutations. As such, it relies on the notion of employment to provide a category, even if some variations on that category are permitted in individualized instances. (167)
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Title Annotation:Abstract through II. The Definition of Employment in Doctrine and Theory A. Defining "Employee", p. 661-691
Author:Bodie, Matthew T.
Publication:Notre Dame Law Review
Date:Dec 1, 2013
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