In an ploy to avoid paying overtime wages, employers may (mis)classify workers as independent contractors because the overtime (and other) provisions of the Fair Labor Standards Act (“FLSA”) apply only to employees, and not independent contractors To determine whether a so-called “independent contractor” is truly an “employee” entitled to overtime, courts use the “economic reality test.” This test includes the following factors:
- The nature and degree of control: Does the worker choose- how much and when to work? Is the worker closely monitored and controlled by the alleged employer? If an alleged employer sets specific scheduled times for the worker, and directs the manner in which the work is to be done, this weighs in favor of a finding that the worker is an employee.
- The opportunity for profit and loss: Can the worker earn more money by being more efficient in the performance of his work? Does the worker perform work for various entities and/or people? Does the worker have the ability to employ a helper or assistant? If any of these factors are present, this weighs in favor of a finding that the worker is an independent contractor.
- The worker’s investment in equipment or material: Does the worker supply his own tools, safety equipment, uniforms, gas or vehicles? If any of these factors are present, this weighs in favor of a finding that the worker is an independent contractor.
- The workers job requires special skill: Does the job require special training, and if so, what is the length and/or intensity of such training? If the worker went through special training to perform the work for which he was hired – particularly if the worker put himself through such training — this weighs in favor of a finding that the worker is an independent contractor.
- The degree of permanency of the working relationship: Is the worker performing work on a long term basis, as opposed to shorter period, such as on an intermittent, project-by-project basis? Does the worker perform work for other companies while performing work for the alleged employer? If a worker performs work on a temporary basis, or a defined short term period, this factor weighs in favor of a finding that the worker is an independent contractor.
- The extent to which the service rendered is an integral part of the alleged employer’s business: Can the business sufficiently operate without the worker’s position? For example, a restaurant cannot run on a day-to-day basis without a cook. But it can run on a day-to-day basis without an electrician. In such a case, the Court can likely find that a cook in a restaurant is an employee, but the electrician is an independent contractor.
It is important to remember that no one factor determines whether an individual is an employee versus an independent contractor, as this analysis is very fact specific. Courts look at the totality of the relationship between the worker and the alleged employer to make the determination.
The determination as to whether a worker is a contractor or an employee does not only affect the workers’ rights under the FLSA, but also affects their rights under other laws. Most federal and state employment laws only protect the rights of employees. Additionally, many state and federal anti-discrimination laws protect employees, but not independent contractors. Many workers do not assert their rights to protection under these employment laws because they do not believe they are protected by such laws based upon of their (mis)classificati
on as independent contractors.
If you believe you have been classified as an independent contractor and have questions regarding whether the classification is appropriate, we encourage you to contact us for a free consultation at 800-616-4000.