Employee or Independent Contractor? – Oregon Appeals Court Weighs In

by Joel Christiansen

Last week the Oregon Court of Appeals ruled on another case addressing the employee vs. independent contractor designation – Portland Columbia Symphony v. Employment Dept.

The court found that the Portland Columbia Symphony correctly applied the independent contractor label to its core musicians.

Case Background

The case arises from a 2009 Oregon Employment Department (OED) employment tax assessment. The issue on appeal was whether symphony musicians were employees or independent contractors.

The symphony is a 501(c)(3) non-profit symphony overseen by a board of directors. It consists of “core” and volunteer members who perform 5 programs per year. Core members were classified as independent contractors during the relevant time.

OED got involved when one of the symphony’s core members lost her job as a property manager, filed for unemployment benefits, and reported her income from the symphony to OED. That triggered the OED’s investigation, which eventually concluded that the Portland Columbia Symphony had misclassified several musicians as independent contractors (i.e., they should have been classified as employees). After investigation, OED issued a notice of tax assessment, seeking payment of payroll taxes.

The symphony appealed the assessment to an administrative law judge (ALJ). It lost that appeal. The ALJ found that the independent contractor designation did not apply to the workers and upheld the tax assessment.

Employee or Independent Contractor?

The Oregon Court of Appeals applied the independent contractor definition found in ORS 670.600 [1]. Specifically, the court addressed “whether the musicians were ‘free from direction and control over the means and manner of providing the services,’ ORS 670.600(2)(a), and whether they ‘customarily engaged in an independently established business,’ ORS 670.600(2)(b).” The court found that at least some of the musicians were correctly classified as independent contractors.

Element #1: “free from direction and control over the means and manner”

Independent contractors must be free from direction and control over the means and manner of providing services. However, as the court has observed, even independent contractors “virtually always will be subject to some level of oversight by the entity or individual for whom the work is performed.” AGAT Transport, Inc. v. Employment Dept. Oregon law  required the court to compare the symphony’s (a) ability to specify desired results (allowed with independent contractors); with its (b) authority to control the way in which the work is performed (not allowed with independent contractors).

The court found that “coordinated efforts among the individual musicians, and the fact that musicians cannot deviate from the collective is not indicative of the right to control.” Instead, the court reasoned that the coordination and structure among the musicians was simply a product of the symphony’s right to specify desired results.

There was also evidence in the record demonstrating that (a) the details of the musicians’ individual services were left to them (e.g., which particular violin to use), and (b) the musicians were free to deviate in certain techniques and standards, as long as the deviation is uniform among the musicians. (e.g., bowing techniques, deviations from standard dress code). For these reasons, the court found that the ALJ had misapplied ORS 670.600(2)(a), supporting the symphony’s independent contractor designation.

Element #2: “customarily engaged in an independently established business”

Independent contractors must also be “customarily engaged in an independently established business.” ORS 670.600(2)(b). A person is customarily engaged in an independently established business if they meet any 3 of the 5 criteria found in ORS 670.600(3). In reviewing whether the musicians were customarily engaged in an independently established business, the court focused primarily on the “risk of loss” and “authority to hire and fire” criteria.

Regarding “risk of loss,” the court found that the musicians’ work is not conducive  to warranties or insurance. And musicians cannot correct defective work because their work is a live performance. Therefore, the court focused on the flat-rate contracts that existed between the symphony and the musicians. Those contracts supported an independent contractor relationship because they showed that the musicians bore the risk of loss.

The court also looked at whether the musicians had authority to hire and fire. It found that the musicians had authority to hire and fire under their contracts with the symphony. It did not matter that the authority was (a) not routinely exercised, and (b) subject to the symphony’s veto power. The court also considered that the musicians were free to hire playing coaches, “roadies,” repair technicians, and drivers. These facts convinced the court that at least some musicians had authority to hire and fire, further supporting the symphony’s independent contractor designation.

[1] There are different tests for independent contractor status, depending on the context (e.g., wage & hour, discrimination, tax, etc.).