Focusing the Multifactor Test for Employee Status: The Restatement’s Entrepreneurial Formulation

The American Law Institute’s twenty-first century mission to restate for the first time American employment law carried the responsibility to provide more clear guidance on the law’s critical distinction between employees and independent contractors. This distinction delineates the scope not only of federal employee protection and benefit statutes, but also of employee protections and benefits conferred by state statutory and common law. A Restatement of Employment Law, however, like any Restatement, could not formulate clearer or otherwise more desirable doctrine from the whole cloth of the views and values of the Reporters or the ALI membership. The Restatement could not offer a new rule of decision. It could only offer a better explanation of what has been the underlying basis of a majority of the better decisions limning the employee-employer distinction. Doing so required close examination of the various unstructured multifactor tests that had been used over the past several decades. The Restatement had to determine how and why the better decisions applied the right-to-control factor and the other factors listed among the various multifactor tests. The Restatement needed to provide guiding principles to render the multifactor tests more focused and predictable. We did so by describing as independent businesspersons those with retained discretion to enhance their independent returns. Truly independent businesspersons retain discretion to enhance their returns or profits by making important business decisions in their own interest. These important decisions, the cases revealed, include the allocation of the labor of others, the allocation of capital, and the allocation of the service providers’ own labor. Or, as we expressed it in the black letter of § 1.01(2), “whether to hire and where to assign assistants, whether to purchase and where to deploy equipment, and whether and when to provide service to other customers.