One way some employers will attempt to avoid the overtime and minimum wage requirements of the Fair Labor Standards Act (FLSA) is by classifying employees as “independent contractors”. This practice is more common in certain industries than others, industries such as construction.
Recently the United States department of Labor obtained a judgment for $380,000.00 against an employer who had classified more than 300 employees working as drywall installers as “independent contractors” and failed to pay them overtime. The press release from the Department of Labor stated as follows:
“”The issue here-misclassifying employees as independent contractors to avoid paying required wages and benefits-is a critical one. Misclassification impacts not only employees and their families, but entire industries,” said Mark Watson, regional administrator for the Wage and Hour Division in the Northeast. “This case sends a clear message that the Wage and Hour Division will use every tool available to protect workers and to ensure a level playing field so that law-abiding employers are not put at a competitive disadvantage.”
The employees, who worked throughout central New York and the Northeast, put in as many as 60 to 70 hours per week with regularity and were paid straight time for hours worked beyond 40 in a workweek.”
Under the FLSA, employees must receive minimum wage and overtime. The FLSA defines “employ” as “suffer or permit to work”, meaning it covers work the employer directs or allows to take place. Workers who are economically dependent on the business of the employer, regardless of skill level, are considered to be employees, and most workers are employees.
On the other hand, independent contractors are workers with economic independence who are in business for themselves.
When making a determination as to whether a worker is an employee or an independent contractor, the courts will look at a number of factors in making its determination. There is no single factor or test to make this determination, but instead they will look at the “totality of the working relationship”. This means the court will look at each particular situation as a whole and consider are relevant facts when making its determination.
While any relevant factors may be considered; the following factors are generally looked at when determining whether an employment relationship exists under the FLSA (i.e., whether a worker is an employee, as opposed to an independent contractor):
1) The extent to which the work performed is an integral part of the employer’s business– If the work performed by a worker is essential to the employer’s business, it is more likely that the worker would not be considered an “independent contractor”.
2) Whether the worker’s managerial skills affect his or her opportunity for profit and loss.– If decisions are made by the worker in how the job is to be done and these decisions could affect their pay, then this weighs in favor of being an “independent contractor”- if the worker simply “does as he is told” or makes the same money regardless of how the work is done- then this weighs in favor of being an “employee”
3) The relative investments in facilities and equipment by the worker and the employer. The worker must make some investment compared to the employer’s investment (and bear some risk for a loss) in order for there to be an indication that he/she is an independent contractor. A worker’s investment in tools and equipment to perform the work does not necessarily indicate independent contractor status, because such tools and equipment may simply be required to perform the work for the employer.
4) The worker’s skill and initiative. Both employees and independent contractors may be skilled workers. If a worker’s skills demonstrate they exercise independent business judgment or the worker is in open market competition with others- this would suggest independent contractor status. If a worker is economically dependent on the employer, that suggests employee status.
5) The permanency of the worker’s relationship with the employer. Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee, as opposed to an independent contractor. However, a worker’s lack of a permanent relationship does not necessarily suggest independent contractor status.
6) The nature and degree of control by the employer. Courts look at things such as who sets pay amounts and work hours, who determines how the work is performed, and if the worker is free to work for others and hire helpers. An independent contractor generally works free from control by the employer (or anyone else, including the employer’s clients). The mere fact a worker works from home or offsite is not indicative of independent contractor status because the employer may exercise substantial control over the working relationship even if it exercises less day-to-day control over the employee’s work at the remote worksite.
The fact the worker has signed an agreement stating that he or she is an independent contractor is not controlling because the reality of the working relationship – and not the label given to the relationship in an agreement – is determinative. Also, the fact the worker has incorporated a business and/or is licensed by a State/local government agency has little bearing on determining the existence of an employment relationship.
If you believe you may be owed overtime pay please call one of our Tennessee Overtime Pay Lawyers today.