The Legal Pitfalls of Job Title Inflation (Part II): Ostensible Agency and Employment-Law Claims by Independent Contractors

Introduction

It should be recalled from Part I that job title inflation is the result of more and more employees, even those that are in the lower echelons of the corporate hierarchy, who are holding titles that convey seniority. Part I posited that this practice could be traced to the recent recession and to the advent of flatter organizational structures in a growing number of business entities. It also scrutinized the detrimental legal effects of job title inflation, specifically the risk of employer liability for employees' conduct through the doctrine of apparent authority and the risk of FLSA employee misclassification at least in less sophisticated organizations that do not have the benefit of corporate counsel.

While Part I focused on employees, this Quick Counsel, Part II of the series, revolves around the legal risks of job title inflation in the context of the relationship between independent contractors and employers that hire them. It will examine the risk to employers of being found liable, through apparent or ostensible agency, for the conduct of their independent contractors. It will also provide an overview on how job title inflation may adversely affect employers in lawsuits where an independent contractor claims employee status and employee benefits.

Legal Ramifications of Job Title Inflation

A. Liability Through Ostensible Agency

Ostensible agency differs from apparent authority in that "[ostensible] agency creates agency relationship that does not otherwise exist, while apparent authority expands authority of an actual agent."ⁱⁱ Ostensible agency arises where an employer holds out to third persons a non-employee, like an independent contractor, as its employee when in fact an independent contractor, by the very definition of that phrase, is not.

In the context of job title inflation, apparent agency becomes relevant in situations where an organization awards a job title to an outside, independent contractor. This would likely happen in scenarios where an organization retains the services of a contractor on a long-term basis, during which period the organization clothes the contractor with a title that traditionally is given to management-level and other employees.

The determination of whether apparent agency exists is fact- and circumstance-specific, and there is neither a bright-line rule that governs nor a particular factor whose presence is dispositive in the determination.ⁱⁱⁱ For example, the court in Wabash Independent Oil Company v. King & Wills Insurance Agency^iv held that an independent contractor who sold insurance for the principal was an apparent agent because the principal held out the independent contractor to the public as a "sales representative" through advertisements, business cards, business sign, and other acts. Another example is Lindstrom v. Minnesota Liquid Fertilizer Co.,^v where the Minnesota Supreme Court held that the company is bound to its lessee's actions, which damaged a third party, because the company referred to the lessee as its "local manager" in its advertisements.^vi

Employers should also remember that agreements that label a party as an independent contractor will not suffice to avoid liability to third persons if and when, because of the employers' words and acts, an independent contractor is reasonably perceived as an employee whose action harmed third persons.^vii Hence, companies and organizations should be wise when dealing with independent contractors and with the manner by which those independent contractors are presented to outside parties. The totality of circumstances controls a case's outcome, but an employer is better off if it does not create the appearance of agency, which is only enhanced if the employer gives an outside contractor a job title that screams agency on its face. The granting of such a job title may be seen as an "advertisement" to outside parties of the particular relationship between the employer and the outside contractor.^viii If the title is also stamped on business cards that the outside contractor disseminates to outside parties, the chance that ostensible agency would be found increases. Despite the fact that job title alone is not dispositive in establishing the presence of ostensible agency, it is a factor that bears upon the totality of circumstances and upon the manner by which courts view those circumstances. To minimize the risk, and to eliminate all the possible factors that a court may view as evidence of ostensible agency in future litigation, employers should intelligently choose the titles that they give to independent contractors.

B. Holding Out An Independent Contractor May Lead to a Finding of Employer-Employee Relationship

Laws and regulations governing employment and labor mainly apply to employees, not contractors.^ix However, if an independent contractor is found to be an employee, through either an administrative or judicial proceeding, that contractor will be able to claim some or all the rights to which employees are entitled—rights that the employer did not intend to confer on the contractor.

While clothing an independent contractor with a title that reasonably leads third parties to believe that the contractor is an employee is not dispositive in determining whether an employer-employee relationship exists, it is one factor that might tip the scales toward that result.^x Giving independent contractors titles that are traditionally held by employees might be interpreted by the contractors as indicative of an employer–employee relationship between them and the employer, which is a factor that a majority of states consider favorable in finding that such a relationship indeed exists.^xi

The test is still predicated on whether a person controls the progress of her work,^xii and in many states, as high as 10 factors are weighed against each other before it can be determined that an employer-employee relationship exists.^xiii Given the multitude of other factors that bear upon the final result, employers may still avoid a finding of employer–employee relationship if only the conferred title and a subjective belief of employment on the contractor's part are supportive of the contractor's case. But employers still need to be careful because some courts construe the law in favor of claimants (independent contractors) especially in worker's compensation cases; that is, if the facts and circumstances can be reasonably construed in favor of finding that a claimant is an employee rather than an independent contractor, that interpretation will hold.^xiv Further, even contracts between employers and non-employees that set forth the particular legal relationship between the two are not dispositive in this type of cases.^xv

Because of the fact-specific nature of the test, it is best for employers to make sure to lose not one factor. The outcome of cases whose resolution is predicated on factor-balancing tests can be difficult to predict, and maintaining a full armory of factors that favor your side is the best practice to implement; thoughtless conferral of inflated titles, especially on independent contractors, makes it easier for courts to hold against the employer.

Recommendations and Conclusion

In tough economic times, conferral of arguably inflated job titles may be beneficial from a business point of view. An article from Wharton School of Business once highlighted that the value of inflated titles is in employee retention. Inflated titles, even if devoid of meaningful insights as to what an employee actually does, "are a very cheap way, almost costless to the firm, to recognize and elicit high commitment from key employees."

Even so, not only does this practice devalue the prestige of titles, it is also fraught with legal risks for the organization. To avoid the legal risks attendant to job title inflation as to independent and outside contractors, they should not be titled in a way that would make them or third parties believe that they are employees who are authorized to act on behalf of the employer. If Mr. Smith is a contractor, then it is wise not to be overly creative and just title him "Contractor." From a business perspective, giving contractors employee-sounding titles like Adviser to the VP of Marketing or Transitory Director of Globalization might give them a morale boost and a feeling of inclusion, inspiring them to work harder for the organization. But this positive business result should be balanced against the risk of opening the organization to potential legal liability. In most instances under this scenario, the legal risks are just too high that foregoing some of the business benefits might well be worth it.

Inflating titles is not inherently evil so long as exercised in moderation. And moderation just means that if an organization inflates someone's job title, it should make sure that the employee at least deserves a bump up to begin with. An organization should not confer the titles beginning with "Chief" or "Director" or "Leader" or "Head" or "VP" to just about any average employee or a contractor as a pat on the back. After all, "not everyone can be above average."

Additional Resources

• Brad Feld, Fighting Back Against Job Title Inflation, CNNMONEY (May 24, 2011, 9:26 AM) Graham Snowdon, The Rise of the Meaningless Job Title, THEGUARDIAN (Mar. 2, 2012 7:24 AM) ACC, Dos and Don"ts of Worker Classification ACC, Checklist to Determine Exempt/Non-Exempt Status for Professional Employees

ⁱ J.D. (expected 2014), The George Washington University Law School. ⁱⁱ 6 AM. JUR. 3D Proof of Facts 457 (1989) (citing Miller v. McDonald"s Corp., 945 P.2d 1107 (Or. Ct. App. 1997)). ⁱⁱⁱ See Miller v. McDonald"s Corp., 945 P.2d 1107, 1113 (holding that a question of fact remained as to whether a franchisee was an apparent agent of the franchisor, such that the franchisor can be held liable for the conduct of the franchisee, where the franchisor engaged in a systematic and comprehensive marketing campaign and required franchisees to adhere to common procedures and operating standards, all of which tended to suggest that all franchisees are simply branches of, and are owned by, the franchisor). ^iv 618 N.E.2d 1214, 1218 (Ill. App. 1993). ^v 119 N.W.2d 855, 863 (Minn. 1963). ^vi See also Halpert v. Manhattan Apartments, 580 F.3d 86, 88 (2d Cir. 2009) (holding that an independent contractor, retained to conduct interviews and hiring selection on the employer's behalf, may successfully bind the employer to his own discriminatory conduct against the interviewees). ^vii Wabash Indep. Oil Co. v. King & Wills Ins. Agency, 618 N.E.2d 1214, 1218 (Ill. App. Ct. 1993). ^viii Id. ^ix Danielle Tarantolo, From Employment to Contract: Section 1981 and Antidiscrimination Law for the Independent Contractor Workforce, 116 YALE L.J. 170, 179 (2006). See, e.g., 29 U.S.C. §152(3) (2000) (exclusion from unionization); I.R.C. § 3306(i) (2000) (exclusion from unemployment benefits); Clark"s Case, 124 Me. 47, 126 A. 18, 19 (1924) (listing cases). ^x Sutton v. Indus. Comm"n of Utah, 344 P.2d 538, 540 (Utah 1959) ("[N]one of the factors separately is controlling."); Lara v. Workers" Comp. Appeals Bd., 182 Cal. App. 4th 393, 399, 105 Cal. Rptr. 3d 769, 773 (2010). ^xi See e.g., Expressway Dodge, Inc. v. McFarland, 766 N.E.2d 26 (Ind. Ct. App. 2002); see generally 8 AM. JUR. 3D Proof of Facts 247 (2009). ^xii Steinert v. Ark. Workers" Comp. Comm"n, 361 S.W.3d 858, 863 (Ark. Ct. App. 2009). ^xiii Restatement (Second) of Agency (2013); see, e.g., Anderson v. PPCT Mgmt. Sys., Inc., 145 P.3d 503, 508 (Alaska 2006); Hanson v. Transp. Gen., Inc., 716 A.2d 857, 866 (Conn. 1998); Falconi v. Coombs & Coombs, Inc., 902 A.2d 1094, 1100 (Del. 2006); Peters v. Haymarket Leasing, Inc., 835 N.E.2d 628, 634 (Mass. App. Ct. 2005). ^xiv See Lindsey v. Trinity Commc'ns, Inc., 275 S.W.3d 411 (Tenn. 2009); Bogan v. Smoothway Const. Co., 130 A.2d 207 (Pa. Super. Ct. 1957). ^xv Tofani v. Lo Biondo Bros. Motor Exp., Inc., 200 A.2d 493 (N.J. Super Ct. App. Div. 1964), aff"d, 205 A.2d 736 (N.J. 1964).