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The Halachic Considerations of Hiring – Part 1
By Dayan Yehoshua Wolfe
As giddy graduates enter the workforce, employers are not only tasked with finding the best match for their businesses, but also with determining how to structure their employment. Parashat Behar is a most fitting time to discuss employment-related issues, as the Torah issues the guiding principle of employer-employee relations: “Ki li Bene Yisrael avadim” – “For the Bene Yisrael are servants unto me” – which the Gemara understands to imply that a Jew’s service of another cannot be structured in a manner resembling slavery, as we are the servants of the One and Only. In these upcoming articles, we will discuss various aspects of employer-employee relationships in Halacha.
Employee or Independent Contractor?
Recently, Uber, the popular ride service, agreed to settle two class action lawsuits by paying as much as $100 million to the drivers represented in the cases, while being allowed it to keep categorizing them as “independent contractors”, rather than “employees”. American law distinguishes between independent contractors (ICs), who produce goods or provide services but are not integrated into the employer’s business, and employees, who do become absorbed into the employer’s corporation.
Hiring ICs is probably more appealing to many because of the financial benefit for the employer: whereas he must pay an unemployment tax (FUTA), workers’ compensation insurance and a portion of the employee, the employer does not have to pay payroll taxes for independent contractors. Hiring ICs, then, relieves the employer from the heavy burden of these expenses. Despite these tax benefits, employers are still left with the question of whether it is worthwhile to employ ICs, and this article will attempt to examine some of the costs and benefits of each position-type within a Halachic framework.
To appropriately address this topic, it is imperative to set forth the basic structure in which Jewish labor laws function. The concept of independent contractors vs. employees parallels the Halachic employment relationship between an employer and service-provider. An employer can hire either a S’chir Yom – lit. day-laborer or “employee”, or a Po’el Kablan – contractor, or “independent contractor”. Employment status in Halacha, is determined by applying the following test: when the contract allows a worker the independence to work on a self-determined schedule, he is Halachically considered a contractor. If however, he is required to work designated hours, he will usually be regarded as an employee.
This distinction between a contractor and an employee goes to the core of Jewish labor laws. Expounding on the Passuk “Ki li Bene Yisrael Avadim”, the Talmud declares that the Jewish people are exclusively servants of Hashem and not of other people, who themselves are servants of Hashem.
Though one may engage in employment, in theory this is forbidden for longer than three consecutive years, as permanent employment is viewed as a type of servitude. Furthermore, from this Passuk the Gemara derives that an employee is given an inalienable right to terminate his contract at any time, granted there is no harm to the employer. Since an employee has the liberty to release himself from his duties, short-term employment is not a form of slavery.
Although this freedom is only available to an employee and not to a contractor — because a contractor does not resemble a servant – nevertheless, a contractor can’t always physically be forced to finish the job. That said, if a contractor does not perform his duties, earned wages can be withheld to offset the cost of hiring a replacement.
In reality, the similarities between halachic and secular employees are deeper than a mere conceptual comparison. The structure of tax and civil labor laws (l’havdil) strongly resembles that of Halacha. Just as Halacha reflects respectively diverse employees and contractors, so too does common secular law recognize the difference between them. Nonetheless, secular law differs from Halachic laws in regard to the exact guidelines distinguishing ICs from employees. The IRS advises that a service provider is considered an independent contractor for tax purposes if “the employer retains only the right to control or direct only the result of the work and not the means and methods of accomplishing the result.” If however, the employer “can control what will be done and how it will be done,” the service provider will generally be considered an employee.
Unlike a secular independent contractor, a Halachic contractor doesn’t necessarily boast complete autonomy over the job, only of his work hours. Consequently, although by and large Halachic contractors align with ICs and Halachic employees with employees as defined by secular law, it is important to examine each situation on a case-by-case basis.
Accordingly, sometimes a Halachic contractor will be viewed as an employee rather than an independent contractor in the American legal system, because the employer has the right of control over the job. Likewise, independent contractors in the American legal system will be judged as Halachic employees when the worker is constrained to specific work hours. Consider, for instance, a journalist: No newspaper can operate without a writing staff, and the employer certainly retains the “right of control” over his employees’ work, yet, often times journalists have the liberty to work on their own timetable. Hence, in Halacha a journalist will frequently be viewed as a contractor.
It is equally fascinating that sometimes even a conforming Halachic contractor, can be viewed in Halacha as a “vendor” and not a “service-provider”. There are several significant differences between vendors and service-providers, with the employer’s payment obligation topping the list. While service providers are compensated for their labor, vendors are paid for their ownership of a certain product; therefore even after all of the work is complete, an employer can still technically back out of the deal until a proper Kinyan (transactional act) on the object is performed. Service providers on the other hand, must always be paid for their finished labor.
In any case, if the employer opts to back out, he might be liable for damages caused to the worker, such as, his expenses (which includes the value of his efforts) as well as missed employment opportunities. Thus, it is important to establish whether a Halachic contractor is a service-provider or a vendor. As a rule, when the principal materials that are being used for the job belong to the employer, the worker will be considered a service-provider, but if the contractor is to furnish all supplies, his status is subject to debate among the Poskim.
The application of this series of Halachot significantly impacts common commercial practice, as is demonstrated by the following clause of an everyday building contract: “The owner does hereby employ the contractor to do all the work and provide all the materials, tools, machinery and supervision necessary for the construction of a (description of work) in the (property description), for the total sum of (amount of contract) all in accordance with the drawings, and specifications which are attached etc.” Since there is no explicit mention of a sale, this contract would fall into the abovementioned argument, and may be viewed as a sale of goods rather than a contract to provide a service. This Halacha applies only to Halachic contractors, as Halachic employees are always considered to be service-providers. Indeed, when the contractor’s materials are used, hiring a worker as a contractor and not an employee may prove beneficial to the employer.
Be’Ezrat Hashem, we will continue the discussion of these Halachot in our upcoming article.