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Independent Contractors: Tennessee

Independent Contractors requirements for other states

Federal law and guidance on this subject should be reviewed together with this section.

Author: XpertHR Editorial Team

Summary

  • Tennessee courts usually apply a common law right of control test to determine whether a worker is an employee or an independent contractor. See Determining Whether a Worker Is an Employee or an Independent Contractor.
  • Similar factors are considered under Tennessee's workers' compensation law. See Workers' Compensation.
  • A three-part ABC test is used for unemployment insurance purposes. See Unemployment Insurance.
  • Certain workers known as marketplace contractors will be considered independent contractors for all purposes under state and local laws, rules, ordinances and resolutions - including the workers' compensation and unemployment insurance laws - if certain conditions are met. See Marketplace Contractors.

Determining Whether a Worker Is an Employee or an Independent Contractor

To determine whether a worker is an employee or an independent contractor, Tennessee courts usually apply a common law right of control test.

This determination "is based on the extent of the control exercised over the employee in the performance of his work, he being an independent contractor if the will of the employer is represented only by the result, but an agent where the employer's will is represented by the means as well as the result." Carbide & Carbon Chemicals Corp. v. Carson, +192 Tenn. 150 (Tenn. 1951).

Relevant factors in applying the common law test include:

  • Whether or not the one employed is engaged in a distinct occupation or business;
  • The kind of occupation with reference to whether in the locality the work is usually done under the direction of an employer or by a specialist without supervision;
  • The skill required in the particular occupation;
  • Whether the employer or workman supplies the instruments, tools and place of work of the person doing the work;
  • The length of time for which the person is employed;
  • The method of payment, whether by time or by job;
  • Whether or not the work is part of the regular business of the employer;
  • Whether or not the parties believe they are creating the relationship of master and servant; and
  • Whether the principal is or is not in business.

Youngblood v. Wall, +815 S.W.2d 512, 517 (Tenn. Ct. App. 1991).

Workers' Compensation

A similar set of factors is considered when determining whether a worker is an employee or an independent contractor under the Tennessee Workers' Compensation Act:

  • The right to control the conduct of the work;
  • The right of termination;
  • The method of payment;
  • The freedom to select and hire helpers;
  • The furnishing of tools and equipment;
  • Self-scheduling of working hours; and
  • The freedom to offer services to other entities.

+Tenn. Code Ann. § 50-6-102(10)(D).

Construction Services

Additional criteria apply for construction services providers.

To qualify as an independent contractor, any person working in the construction industry must:

  • Be listed on Tennessee's Workers Compensation Exemption Registry;
  • Not be covered under a policy of workers' compensation insurance maintained by the person or entity for whom the worker is providing services; and
  • Render services on a construction project that is not a commercial construction project, as defined in +Tenn. Code Ann. § 50-6-901 (unless the general contractor for whom the construction services provider renders construction services complies with +Tenn. Code Ann. § 50-6-914(b)(2)).

Any construction industry employer that misclassifies employees as independent contractors is subject to a penalty of $1,000 or one and one-half times the average yearly workers' compensation premium for the worker. +Tenn. Code Ann. § 50-6-411.

Unemployment Insurance

NOTE: Effective January 1, 2020, the federal Internal Revenue Service's 20-Factor Test will be used to determine whether a worker is an employee or an independent contractor under Tennessee's unemployment insurance law. See Future Developments.

For purposes of the Tennessee Employment Security Law, a worker is assumed to be an employee rather than an independent contractor unless all three of the following factors of the so-called ABC test are met:

  • The individual has been and will continue to be free from control and direction in connection with the performance of services, both under a contract for the performance of services and in fact;
  • Services are outside the employer's usual course of business, or are performed outside of all the places of the employer's business; and
  • The individual is customarily engaged in an independently established trade, occupation, profession, or business.

+Tenn. Code Ann. § 50-7-207(e).

Marketplace Contractors

Certain workers known as marketplace contractors are considered independent contractors for all purposes under state and local laws, rules, ordinances and resolutions - including the workers' compensation and unemployment insurance laws - if certain conditions are met.

A marketplace contractor is any individual, corporation, partnership, sole proprietorship or other business entity who:

  • Enters into an agreement with a marketplace platform to use the platform's online-enabled application, software, website or system to receive connections to third-party individuals or entities seeking services in Tennessee; and
  • In return for compensation from the third-party or marketplace platform, offers or provides services to the third-party individuals or entities upon being given an assignment or connection through the marketplace platform's online-enabled application, software, website, or system.

A marketplace platform is a corporation, partnership, sole proprietorship, or other business entity that:

  • Offers an online-enabled application, software, website or system that enables marketplace contractors to provide services to third-party individuals or entities seeking services; and
  • Neither directly nor through any related party derives any benefit from work performed by marketplace contractors other than a subscription or use fee for placing marketplace contractors in assignments or otherwise providing connections.

A marketplace contractor will be considered an independent contractor as long as the following conditions are set forth in a written agreement between the platform and the contractor:

  • The platform and the contractor agree in writing that the contractor is an independent contractor;
  • The platform does not unilaterally prescribe specific hours during which the marketplace contractor must be available to accept service requests (but a marketplace contractor may post his or her voluntary availability to provide services);
  • The platform does not prohibit the contractor from from using any online-enabled application, software, website or system offered by other marketplace platforms;
  • The contractor may, at its discretion, enlist the help of an assistant to complete the services, and the marketplace platform may require the assistant to complete the marketplace platform's standard registration and vetting process (if the contractor enlists the help of an assistant, the contractor, not the platform, is responsible for paying the assistant);
  • The platform does not restrict the contractor from engaging in any other occupation or business;
  • The platform does not require the contractor to use specific supplies or equipment;
  • The platform does not control the means and methods for the services performed by a contractor by requiring him or her to follow specified instructions (however, the platform may require that the quality of the services provided by the marketplace contractor meets specific standards and requirements);
  • The agreement or contract between the contractor and the platform may be terminated by either party with or without cause;
  • The platform provides no medical or other insurance benefits to the contractor, and the contractor is responsible for paying taxes on all income derived as a result of services performed to third parties from the assignments or connections received from the marketplace platform; and
  • All, or substantially all, payment to the contractor is based on performance of services to third parties who have engaged his or her services through the marketplace platform.

These provisions do not apply to:

Tenn. Code Ann. § 50-10-101; Tenn. Code Ann. § 50-10-102; and Tenn. Code Ann. § 50-10-103.

Transportation Network Companies

A driver for a Transportation Network Company (TNC) (a ride-sharing company like Uber or Lyft that uses a digital network to connect customers with drivers who provide prearranged rides) is "not deemed to control or manage" TNC drivers. +Tenn. Code Ann. § 65-15-302.

Future Developments

Effective January 1, 2020, the federal Internal Revenue Service's 20-Factor Test will be used to determine whether a worker is an employee or an independent contractor under the Tennessee Wage Regulation Act, the Tennessee Occupational Safety and Health Act, the Tennessee Employment Security Law and the Tennessee Drug-Free Workplace Law. +Tenn. Code Ann. § 50-2-111, +Tenn. Code Ann. § 50-3-103, +Tenn. Code Ann. § 50-7-207 and +Tenn. Code Ann. § 50-9-103, as amended by +2019 Bill Text TN H.B. 539.

The ABC test for determining whether a worker is an employee or an independent contractor under the Tennessee Employment Security Law is repealed. The statutory test for determining whether a worker is an employee or an independent contractor under the Tennessee Workers' Compensation Act remains unchanged.

There are no other developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.