Managing the Employment Relationship in Indiana

From time to time, we get employers with specific questions regarding employment relationship guidelines in Indiana.

Here are just a few of those questions we have heard in 2023:

Employment relationship

State-specific laws

What state-specific laws govern the employment relationship?

Indiana has adopted the employment-at-will doctrine. Where there is no definite or ascertainable term of employment, the employment is at-will, and is presumptively terminable at any time, with or without cause, by either the employee or employer. Indiana courts have recognized some limited exceptions to the employment-at-will doctrine:

  • Public policy:  Indiana recognizes an exception to the at-will doctrine if termination would contravene public policy. Indiana courts have defined this to mean that an employer cannot terminate an employee in retaliation for exercising a statutorily protected right, such as filing a workers’ compensation claim (a Frampton claim);
  • Promissory estoppel:  Situations in which the employer makes a promise and the employee relies on that promise to his or her detriment; or
  • Refusing to perform an illegal act:  An employee may not be discharged for refusing to commit an illegal act.

Indiana’s statutory laws governing the employment relationship can be found in Title 22 (Labor and Safety) of the Indiana Code.

Who do these cover, including categories of workers?

Indiana’s employment-at-will doctrine applies to all employers and employees, unless otherwise provided by contract or statute.

Indiana employment laws cover employees only (with different thresholds for the required number of employees), not independent contractors. For example:

  • the Workers’ Compensation Law applies to every employer-employee relationship in Indiana, unless specifically exempted;
  • the Minimum Wage Law applies to employers with two or more employees; and
  • the Civil Rights Law applies to any employer employing six or more employees within the state.


Are there state-specific rules regarding employee/contractor misclassification?

Indiana’s state agencies rely on different tests to determine the proper classification of employees and independent contractors.

For the purposes of eligibility for unemployment insurance, the Indiana Department of Workforce Development considers a worker to be an independent contractor only if all of the following apply:

  • the individual is free from control and direction in connection with the performance of their service;
  • the service is performed outside the company’s usual course of business, and the individual’s usual area of employment is not within the company’s business; and
  • the individual is customarily engaged in an independently estab­lished trade, occupation, profession, or business of the same nature as the work that they do for the company or is a sales agent who is paid commission only and has complete control over their own time and effort.

For the purposes of eligibility for workers’ compensation, the Indiana Workers’ Compensation Board defers to the Internal Revenue Service guidelines for the definition of “independent contractor.” Indiana’s workers’ compensation law generally excludes certain workers from the definition of “employee,” including real estate professionals, owner-operators that provide a motor vehicle, and the services of a driver.

For the purposes of state taxes, the Indiana Department of Labor evaluates the same factors as the IRS in making worker classification determinations.

For third-party liability, Indiana has adopted the 10-factor common law test, found in the Restatement (Second) of Agency § 220(2), to deter­mine whether an individual is acting as an employee or an independent contractor. All factors are considered and no single factor is dispositive.

In March 2018, Governor Holcomb signed House Bill 1286, under which a “marketplace contractor” (e.g., a rideshare driver) will be treated as an independent contractor if:

  • all or substantially all of the payment for the services performed by the marketplace contractor relates to the performance of services or other output;
  • there is a written contract executed between the marketplace contractor and the marketplace platform that contains specific provisions, including that the marketplace contractor is not an employee of the platform;
  • payments are based on services or output by the marketplace contractor; the marketplace contractor chooses the work hours or schedule;
  • the marketplace contractor may perform services for other parties without restriction; and
  • the marketplace contractor bears responsibility for all or substan­tially all of the expenses that they pay or incur in performing the services, without the right to obtain reimbursement.


Must an employment contract be in writing?

Generally, Indiana employment contracts need not be in writing. However, employment contracts that extend for a term of one year or more must be in writing and signed by the party to be charged. It is highly recommended that employment agreements be in writing.

Are any terms implied into employment contracts?

Indiana courts may imply two terms in employment contracts. First, Indiana courts imply that employment contracts for an indefinite period of time are “at will,” meaning that either the employer or employee may terminate the employment contract at any time and for any reason. Second, Indiana courts imply a covenant of good faith and fair dealing in employment contracts (but not in at-will employment relationships).

Are mandatory arbitration agreements enforceable?

Indiana courts will enforce mandatory arbitration agreements. But, the courts will enforce only mandatory arbitration agreements as to those issues that the parties have agreed to arbitrate by clear and express language. Courts will not extend mandatory arbitration agreements by construction or implication.

How can employers make changes to existing employment agreements?

Basic contract principles and the terms of the employment agreement govern modifications of employment agreements. Continued employment is generally sufficient consideration for modification of at-will employment relationships.

We will continue to update this as different questions arise………..

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