United States v. Silk
67 S. Ct. 1463, 1947 U.S. LEXIS 2847, 331 U.S. 704 (1947)
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Rule of Law:
The determination of whether a worker is an employee or an independent contractor for purposes of the Social Security Act is not governed exclusively by the common law 'right to control' test, but instead depends on the economic realities of the entire working relationship.
Facts:
- Albert Silk Coal Co. engaged two types of workers: unloaders who unloaded coal from railroad cars and truckers who delivered coal to customers.
- The unloaders were paid by the ton, furnished their own simple tools (picks and shovels), and could come and go as they pleased.
- The truckers hired by Silk owned their own trucks, paid their own operating expenses, were paid by the ton for deliveries, and could refuse to make deliveries and haul for other companies.
- Greyvan Lines, Inc., a trucking company, contracted with truckmen who owned their own trucks to transport goods.
- Greyvan's contracts required truckmen to haul exclusively for the company, paint the 'Greyvan Lines' logo on their trucks, follow company rules and instructions, and collect money from customers on the company's behalf.
- Greyvan's truckmen were paid a percentage of the tariff charged to the customer, had to furnish their own labor and equipment, and paid for their own operating expenses.
Procedural Posture:
- The Commissioner of Internal Revenue assessed employment taxes against Albert Silk Coal Co., ruling that its coal unloaders and truckers were employees.
- Silk paid the taxes, filed an unsuccessful claim for a refund, and then sued the United States in federal District Court to recover the payment.
- The District Court found that the workers were independent contractors and ruled in favor of Silk.
- The U.S. Court of Appeals for the Tenth Circuit affirmed the District Court's judgment.
- In a separate case, the Commissioner of Internal Revenue assessed employment taxes against Greyvan Lines, Inc., ruling that its truckmen were employees.
- Greyvan sued a Collector of Internal Revenue in federal District Court to recover the taxes paid, and the court found the truckmen were independent contractors.
- The U.S. Court of Appeals for the Seventh Circuit affirmed the judgment for Greyvan.
- The United States Supreme Court granted certiorari to hear both cases together to resolve conflicting standards in federal courts.
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Issue:
Is the traditional common law 'right to control' test the sole standard for determining whether a worker qualifies as an 'employee' under the Social Security Act?
Opinions:
Majority - Mr. Justice Reed
No. The determination of an 'employee' under the Social Security Act is not restricted to the common law control test but instead depends on the broader economic realities of the relationship. The Act's purpose is to protect those who are economically dependent on a business for their livelihood. In analyzing the relationship, courts should consider factors such as the degree of control, opportunities for profit or loss, investment in facilities, permanency of the relation, and the skill required. Applying this test, the coal unloaders in the Silk case are employees because they provided only simple tools, had no significant investment, and performed routine work integral to Silk's business, making them economically dependent. In contrast, both Silk's and Greyvan's truckers are independent contractors because they own their own expensive equipment (trucks), bear the costs and risks of their operations, and function as small businessmen with opportunities for profit or loss based on their own management.
Dissenting - Mr. Justice Black, Mr. Justice Douglas, and Mr. Justice Murphy
No. While we agree with the legal principles and the 'economic reality' test stated by the majority, we believe the correct application of these principles requires finding that all the workers in both cases, including the truckers, are employees under the Social Security Act and that both judgments should be reversed entirely.
Concurring/dissenting - Mr. Justice Rutledge
No. I agree with the Court's adoption of the broader 'economic reality' test and its application to the unloaders. However, for the truckers in both cases, which are borderline, the Court should not have made the final factual determination. Instead, having established the correct legal standard that the lower courts failed to apply, the proper course would be to remand the cases involving the truckers to the District Courts to re-evaluate the facts in light of this new, broader standard.
Analysis:
This case is significant for replacing the narrow, technical common law 'right to control' test with a more flexible 'economic reality' or 'total situation' test for determining employment status under the Social Security Act. This shift broadened the potential coverage of the Act, aligning its interpretation with its remedial purpose of providing a safety net for workers who are economically dependent on a business. The decision established a multi-factor analysis that focuses on substance over form, influencing how employment status is determined not only for Social Security but also in other areas of federal labor and employment law. Future cases would need to weigh these various economic factors rather than focusing solely on an employer's right to control the details of the work.
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