In the recent case of Reed v Yackell, ____ Mich ____ (decided July 28, 2005), the Michigan Supreme Court addressed the issue of when an injured worker is considered an independent contractor, versus an employee. In this case, one of the named defendants was Mr. Food, Inc., a retail marketer of meat products.  Also named as a defendant was the owner of Mr. Food, Inc., Gerald Herskovitz (Herskovitz). A third defendant was Buddy Hadley (Hadley), who is an employee of Mr. Food, Inc. and is in charge of its meat deliveries.

Historically, Reed was an employee of Mr. Food, Inc., until he was fired for performance issues. After his termination, he earned money by painting houses.

Subsequently, defendant Hadley hired Reed to help with Mr. Food, Inc. deliveries on several occasions.  Reed was paid between $35-$40 per day in cash, with no taxes withheld.

In May of 1998, Reed was riding in a cargo van owned by Mr. Food, Inc., that was being driven by Hadley. As the van approached an intersection, another vehicle ran a red light, striking the van. As a result of the accident, Reed suffered a closed-head injury.

Reed filed a lawsuit in circuit court. The defendants argued that Reed’s suit was barred because he was an employee pursuant to MCL 418.131(1). This argument was initially rejected. Of significance, a jury awarded damages in excess of $1.2 million dollars.

EMPLOYEE V. INDEPENDENT CONTRACTOR

The primary issue in the case was whether Reed was an employee at the time of the accident, thus limiting his recovery to the benefits provided in the workers’ compensation act. The Supreme Court specifically found that, in order to be considered an independent contractor, the person owning or operating a separate business must provide the same service that he performed for the employer.  The individual who maintains a separate business and holds himself out to render service to the public, but does so in the broad, undefined field of general labor, may not be considered an independent contractor.

MICHIGAN SUPREME COURT DECISION

In Reed, the Court found that because Hadley had the authority to hire Reed, and the services Reed performed were for Mr. Food, an implied contract existed.   

The court next analyzed whether the claimant was excluded pursuant to Subsection 161(1)(N) as an independent contractor.  The court explained that the statute excludes as an employee any person who: 1) maintains his or her own business in relation to the service he or she provides the employer; 2) holds himself or herself out to the public to render the same service that he or she performed for the employer; AND 3) is not an employer subject to the act. The Court found that, even assuming Reed had a separate business as a painter and held himself out to the public, it did not constitute “this service,” i.e. the same service that he performed for Mr. Food, Inc.  Therefore, Reed was not considered an independent contractor and was limited to the recovery provided under the workers’ compensation laws.