On September 15, 2008, a California Court of Appeal decided the case of Varisco v. Gateway Science and Engineering, Inc., holding that – where all other indicators point to a valid independent contractor relationship – a single clause in a contract allowing either party to terminate the relationship "at will" does not transform it into an employment relationship.
Plaintiff Varisco was certified by the California Division of the State Architect ("DSA") as a Class-1 Inspector. On January 30, 2004, Gateway Science entered into a written agreement with Varisco which stated that Gateway Science would pay Varisco for providing DSA Inspection Services to the Los Angeles Unified School District. In November of 2004, Gateway Science sent Varisco a letter terminating the relationship because Varisco refused to sign a new contract with Gateway Science, and refused to provide Gateway Science with various documents that it requested. Varisco sued Gateway Science for damages under various theories, arguing that he had actually been an employee instead of an independent contractor.
The Court weighed the various factors typically considered when determining whether a proper independent contractor relationship existed, and concluded that almost all of those factors indicated that it did. Importantly, Gateway Science did not control the manner or means by which Varisco performed his inspection duties. Additionally, Varisco engaged in skilled work in a distinct occupation; he supplied his own clothes and equipment; and he received no benefits. Varisco even testified that he understood that he was entering into an independent contractor relationship and that he had never been an employee of Gateway Science.
Despite all this, Varisco claimed that he was an employee based primarily on a clause in his written agreement with Gateway Science that stated: "The employee or [Gateway Science] may terminate with or without cause and with or without notice employment At-Will at any time. Nothing in this agreement or in any document statement shall limit the right to terminate At-Will employment. No manager, supervisor or employee of [Gateway Science] has any authority to enter into an agreement for employment for any specified period of time or to make an agreement for employment for any specified period of time or to make an agreement for employment other than At-Will terms."
Contrary to Varisco’s argument, the Court noted that an independent contractor agreement can properly include an at-will clause giving the parties the right to terminate the agreement. The Court then rejected Varisco’s claim that such a clause – by itself – transformed the independent contractor relationship into an employment relationship stating that, "[i]If it did, independent contractor arrangements could only be established through agreements which limited the right of a party, or perhaps both parties, to terminate the agreement. This would be absurd, and it is not the law."
Varisco v. Gateway Science and Engineering, Inc. affirms that independent contractor agreements may include clauses allowing the parties to terminate the agreement "at will." However, it remains important to remember that there are a large number of factors that weigh into the analysis of whether a particular worker can be appropriately treated as an independent contractor instead of an employee. Because of the significant potential for liability if it is later determined that a worker was misclassified as an independent contractor, companies are encouraged to have their independent contractor relationships reviewed by competent employment counsel.
For further information, please contact Aaron Heisler at (805) 879-1848.