Liability Issues Around Contract Workers


Companies use contract workers for a number of reasons. Primarily, they use them because doing so saves them money and keeps them from having to add someone to the payroll when there may not be enough consistent work to support that person. But companies routinely face lawsuits for what contract workers do in spite of the legal principles that protect them.

The general rule, known as vicarious liability, is that a company is legally responsible for the acts of its workers that are committed within the scope of their employment. For example, if a company hired a driver and that driver had an accident while on the job, the person that driver injured could file a lawsuit against the company. In some cases, juries have hit employers with massive verdicts. However, the employee must be performing an act for the benefit of the employer at the time of the accident for the company to be liable. If the employee was doing a personal task or errand, that would not be considered within the scope of their employment.

Why Businesses Hire Contract Workers

In any case, a fundamental question in any scenario that could potentially involve vicarious liability would be whether a worker could legally be considered an employee. There is a fine line between an employee and a contract worker. Companies often categorize workers as independent contractors (or contract workers) to the greatest extent possible to protect themselves from unnecessary liability exposure. However, a court will make the final decision about whether a contract worker should be considered an employee for purposes of liability by reviewing the totality of the situation.

The classification of people as employees versus contractors has become a political issue. There has been a movement in some states and talk of federal government rules that would forbid companies from categorizing some workers as independent contractors. For example, California passed AB5 to write a three-part test into law that its courts previously used in cases involving the classification of workers. The practical application of this law is that it is much harder to classify laborers as contract workers; however, these laws have not gained much traction in the rest of the country.

From a federal perspective, there was a final rule in the closing days of the Trump Administration that adopted an “economic reality” test that would have made it easier for companies to classify people as contract workers. That rule was withdrawn in the early days of the Biden Administration. There had been talk that the federal government would institute new rules regarding the issue, but they would be difficult to institute in practice.

The Legal Rules in Texas About Liability for Contract Worker Actions

The situation in Texas is somewhat different. There are still some ways a company may be held legally responsible for the acts of contract workers; however, the potential ways a company becomes liable are more limited. Texas businesses have stronger protections under the law, as affirmed by a recent case decided by the Texas Supreme Court.

In JLB Builders, LLC v. Hernandez, the Texas Supreme Court went a long way toward clarifying the rules regarding liability to contractors that should be used in Texas lawsuits. In Texas, whether a company will be held liable for the acts of contract workers is all about control. The rule is that a company that employs a contract worker does not have a legal obligation to ensure they do the work safely. If the contract worker causes injuries, it would be the worker themselves who is legally responsible.

There is one large exception that companies need to consider. If the company directs the performance of the contract worker, or if it has the ability to do so under the terms of the contract, the court could find the contract worker was actually an employee for purposes of liability.

The Factors Courts Consider in Determining Liability for Contract Worker Torts

In Texas, a court will apply the “Limestone factors” that were used to determine control in a 2002 case. Whether a contract worker is an employee for purposes of liability would depend on:

  • The nature of the contract worker’s business
  • Whether the contract worker was required to furnish their own tools and supplies for the job
  • Whether the worker had the right to control the manner in which the work was being done (with the exception of controlling the final result)
  • The time for which the worker is employed (regular hours vs. being able to do work when they please)
  • The method of payment, whether by unit of time or by the job

In reality, the most important element of the test is control, and courts will look at both the realities of the work arrangement and the details of a contract.

Negligent Hiring Liability

There is another way that a business can potentially be held liable for the actions of a contract worker. Even given the general rule that an employer is not responsible for the acts of independent contractors, companies are expected to carefully choose who they will use as contract workers. Otherwise, they may be exposed to liability for negligent hiring. Even if the company does not hire the contract worker per se, it must still use reasonable care in the selection. In a negligent hiring case, a plaintiff must prove the business “knew or should have known that the contractor was incompetent and a third person was injured because of the contractor’s incompetency.”

Before your business hires a contract worker, you should do a deep dive into their abilities and track record for safety. When employing contractors, you should be careful not to exert control over the details of their performance because that could exposure your business to legal liability for their work-related wrongdoing.