An independent contractor is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement. Independence and cooperation sound somewhat like opposites, but they are actually closely intertwined in a cooperative economy. Through cooperative production, cooperative marketing, cooperative ownership of equipment, and cooperative purchasing of supplies and services, many small-scale and independent enterprises can access economies of scale usually harnessed only by big businesses. When multiple independent entrepreneurs come together and form a producer, marketing, and/or purchasing cooperative, the relationship between the entrepreneurs and the cooperative is usually one of independent contractors, but beware there are some gray areas.
How to determine who is an Independent Contractor
The test for who is an independent contractor looks a little different, depending on your jurisdiction, but one U.S. Supreme Court [Community for Creative Non-Violence v. Reid, 490 U.S. 730, 751-752 (1989)]. opinion summed up the factors that are weighed together in determining who is an employee versus who is an independent contractor:
1) The hiring party’s right to control the manner and means by which the product is accomplished.
2) The skill required;
3) The source of the instrumentalities and tools;
4) The location of the work;
5) The duration of the relationship between the parties;
6) whether the hiring party has the right to assign additional projects to the hired party;
7) The extent of the hired party’s discretion over when and how long to work;
8) The method of payment;
9) The hired party’s role in hiring and paying assistants;
10) Whether the work is part of the regular business of the hiring party;
11) Whether the hiring party is in business;
12) The provision of employee benefits; and
13) The tax treatment of the hired party.
Independent contractor relationship or an employer/employee relationship?
If a group of independent home bread bakers forms a cooperative to jointly market their breads and to collectively purchase ingredients, a court would likely find that bread bakers are not employees of their cooperative, so long as the bakers work in their own homes, use their own appliances, hire their own assistants, set their own hours, decide on the manner in which they bake, and have the freedom to sell bread elsewhere.
However, if an autocratic manager or board of the cooperative began to exert more control over each baker, the relationship might change. If the cooperative dictates how much each baker must produce, sets specifications for ingredients, and fixes prices on the breads of all bakers, and if one manager has the power to “hire and fire” bakers, this could potentially be ruled to be an employment relationship. This was essentially the outcome of the Supreme Court’s 1961 ruling in Goldberg v. Whitaker House Cooperative, Inc., [Goldberg v. Whitaker House Cooperative, Inc., 366 U.S. 28 (1961)] where 200 home-based clothing manufacturers (primarily women engaged in knitting and embroidery) joined a cooperative and sold clothing items to the cooperative. The Court determined that an employment relationship existed, due to the level of control the cooperative had over each member’s work (dictating design, order size, timing, payment, and other terms of work).
The moral to the story is that if multiple independent entrepreneurs, such as health care practitioners, gardeners, or food artisans, come together to form a producer, marketing, or purchasing cooperative, it’s very important to look at the various factors listed above to determine whether the relationship is more like an independent contractor relationship or an employer/employee relationship. If it’s the latter, then congratulations, you may have created a worker cooperative! However, see the section “Determining If Someone Is a Cooperative Member or Employee” to learn more about when workers in a worker cooperative need to be treated as employees.
Determining If Someone Is a Cooperative Member or Employee
In order to make a distinction between types of worker-owners, it’s important to apply a test or series of tests that have been developed for determining who is a member of an enterprise. Below, we provide guidance on determining how much control each worker-owner must have in order to be classified as a “member,” rather
