Wait, Is that Pro Golfer an Employee or Independent Contractor?

By Evan Conder - Shawe & Rosenthal LLP

December 8, 2022

As you may be aware, there is some contentious litigation ongoing between the PGA Tour and LIV Golf, a new and controversial golf league financed by the Saudi Arabian Public Investment Fund (i.e. the Saudi Arabian government) that aims to become a competitive alternative to the PGA Tour.  If you’ve successfully avoided the barrage of news stories on the issues, I’ll summarize the main points for you here:

1.  When it came time for the LIV Golf league to attract talent to gain popularity, it offered staggering compensation packages to some of the biggest names on the PGA Tour to join 2.  In response (and presumably to destroy its competition), the PGA Tour relied on its bylaws to ban defecting players—who were classified as independent contractors—from competing in future PGA Tour events.
3.  LIV Golf league players subsequently filed a lawsuit alleging violation of antitrust laws, and the PGA Tour filed a countersuit against LIV Golf accusing it of interfering with its contracts with players.

While two golf giants clashing over antitrust law can be entertaining on its own, employers should follow this litigation to stay apprised of the developments in the law surrounding misclassification of independent contractors.  Indeed, the PGA Tour has hinted at its strategy in litigating against LIV Golf, stating in an open memorandum to all PGA Tour Members that “the suspended players—who are now Saudi Golf League employees—[] walked away from the Tour and now want back in.”  That is, the PGA Tour’s position is that its golfers are independent contractors, while the LIV Golf league’s golfers are employees.

As our partner, Liz Torphy-Donzella, discussed in her recent article regarding the practical implications of the DOL’s proposed independent contractor test, the guidance from government agencies to support employers in their compliance with these laws varies with the change of one Presidential administration to the next.  Under its new proposed rule on determining independent contractor status, the U.S. Department of Labor inquires into the “totality of the circumstances” of the relationship between an independent contractor and a company, focusing on whether the individual is “economically dependent” on the employer when looking at the situation as a whole, or if they are “in business for themselves.”

Now, here is where an important distinction between the two golf leagues should come into play.  When a golfer becomes a member of the PGA Tour, they are not guaranteed any money, but have the opportunity to win prize money at PGA Tour events.  Indeed, PGA Tour members can lose money after paying for travel, hotels, meals, and caddie expenses out of their own pockets if they are cut from a tournament and come home empty handed.  Conversely, LIV Golf players are guaranteed money under their contracts no matter their success on any particular weekend in addition to prize money at LIV Golf events.  Under the DOL’s proposed rule, golfers with the PGA Tour would likely be considered independent contractors, while golfers with LIV Golf would be considered employees.

However, independent contractors are traditionally free to provide their services to other, competing entities.  So, when an employer exercises significant control over its workers (another factor to which courts look when examining whether a worker has been misclassified) by, for example, banning them from working for any competing business, a court would be likely to weigh that factor in favor of classification as an employee.  Accordingly, the PGA Tour golfers could be considered employees under the “control” factor, while this factor would tend to indicate that LIV Golf league members are independent contractors since they are free to work for competing entities.

Indeed, courts will not look only to this economic dependence and the degree of control when inquiring into whether an individual has been misclassified as an independent contractor.  Sadly and confusingly for employers, the analysis varies under different laws. When determining whether an individual is properly classified under anti-discrimination laws, courts will consider the level of skill required, the source of instruments and tools used during the performance of the individual’s work, whether the worker determines when and how the work is done, and the method of payment.  On the other hand, when inquiring into whether an individual is properly classified under the Internal Revenue Code, courts will look to the behavioral and financial control the employer exercises over employees, as well as the type of relationship between the two parties.

As always, we will keep you posted on any developments with regard to the DOL’s proposed rule and the resulting implications of the battle between the PGA Tour and LIV Golf with respect to their independent contractor issue.  In the meantime, employers should closely evaluate current and future relationships with their workers to steer clear of becoming liable for unpaid wages, taxes, liquidated damages, and attorneys’ fees.  Because ensuring compliance with all applicable laws using a variety of tests is no easy task, we suggest seeking guidance from counsel, which may entail utilizing checklists that incorporate numerous factors used under various laws to determine whether a worker has been misclassified.

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