Michigan Supreme Court Clarifies Independent Contractor-Employee Distinction

In a 6–1 decision, the Supreme Court of Michigan has reversed a 2013 decision of a special panel of the state’s Court of Appeals, finding that a landscape worker was an independent contractor and not an employee of the defendant landscape company [Auto-Owners Ins. Co. v. All Star Lawn Specialists Plus, Inc., 2014 Mich. LEXIS 2161 (Nov. 25, 2014)]. Finding that the Court of Appeals had erred in construing the provisions of MCL 418.161(1)(n), the high court clarified that if a purported employer could not show that each of the three statutory criteria were true for an injured worker performing service in the course of the trade, business, profession, or occupation of the “employer” at the time of the injury, the worker would be deemed an independent contractor.

The worker sustained injuries while vacuuming leaves and filed a civil action against the defendant landscape company alleging negligence for the company’s alleged failure to adequately secure the leaf vacuum to a company truck, causing it to fall and strike him. The defendant maintained three separate policies of insurance with Auto-Owners Insurance Co. at the time of the accident: one for general liability, a second for commercial no-fault automobile coverage and a third providing workers’ compensation coverage. Auto-Owners contended the plaintiff was an employee of the landscaping company and that his exclusive remedy was to recover workers’ compensation benefits.

The plaintiff countered that he offered his services to the public and that pursuant to MCL 418.161(1)(n), he was an independent contractor and, as such, was entitled to maintain his civil action and recover his damages pursuant to the Auto-Owners’ general liability and no-fault policies. A trial judge found that the worker was an independent contractor at the time of his accident, but the special panel of the Michigan Court of Appeals disagreed, finding that since plaintiff did not employ others, he was an employee, and not an independent contractor, at the time of his injuries.

The supreme court said that the three criteria set forth in MCL 418.161(1)(n) must be met for a person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury to be considered an employee—that the person, in relation to the service:

• Does not maintain a separate business;
• Does not hold himself or herself out to and render service to the public: and
• Is not an employer subject to this act.

The high court said that the Legislature intended that once one of these three provisions was established, the individual would not be considered an employee. The Court of Appeals had required the plaintiff to establish all three criteria and determined that since the plaintiff did not employ others, he could not be deemed an independent contractor. That was error, held the Supreme Court.