Misclassification

Under the Fair Labor Standards Act (FLSA) when is a Worker an Employee or an Independent Contractor?

In order for the FLSA’s minimum wage and overtime provisions to apply to a Florida worker, the worker must be classified as an “employee” of the employer, meaning that an employment relationship must exist between the worker and the employer.

Retaliation under FLSA

What is the meaning of the term “employment relationship” and what is the significance of that determination in applying provisions of the Fair Labor Standards Act (“FLSA”)? To determine whether an employment relationship exists you must decide if a worker an employee or independent contractor with respect to the person or company that has hired them.

The FLSA defines “employ” as including to “suffer or permit to work”, representing the broadest definition of employment under the law because it covers work that the employer directs or allows to take place. Applying the FLSA’s very broad definition, 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.

A number of “economic realities” factors are helpful guides in resolving whether a worker is truly in business for himself or herself, or like most, is economically dependent on an employer who can require (or allow) employees to work and who can prevent employees from working. The Supreme Court has indicated that there is no single rule or test for determining whether an individual is an employee or independent contractor for purposes of the FLSA. The Court has held that the totality of the working relationship is determinative, meaning that all facts relevant to the relationship between the worker and the employer must be considered.

While the factors considered can vary, and while no one set of factors is exclusive, the following factors are generally considered 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 integral to the employer’s business, it is more likely that the worker is economically dependent on the employer and less likely that the worker is in business for himself or herself. For example, work is integral to the employer’s business if it is a part of its production process or if it is a service that the employer is in business to provide.

2) Whether the worker’s managerial skills affect his or her opportunity for profit and loss. Managerial skill may be indicated by the hiring and supervision of workers or by investment in equipment. Analysis of this factor should focus on whether the worker exercises managerial skills and, if so, whether those skills affect that worker’s opportunity for both profit and loss.

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 in business for himself or herself. 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. If a worker’s business investment compares favorably enough to the employer’s that they appear to be sharing risk of loss, this factor indicates that the worker may be an independent contractor.

4) The worker’s skill and initiative. Both employees and independent contractors may be skilled workers. To indicate possible independent contractor status, the worker’s skills should demonstrate that he or she exercises independent business judgment. Further, the fact that a worker is in open market competition with others would suggest independent contractor status. For example, specialized skills possessed by carpenters, construction workers, and electricians are not themselves indicative of independent contractor status; rather, it is whether these workers take initiative to operate as independent businesses, as opposed to being economically dependent, that suggests independent contractor 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 with the employer does not necessarily suggest independent contractor status because the impermanent relationship may be due to industry-specific factors, or the fact that an employer routinely uses staffing agencies.

6) The nature and degree of control by the employer. Analysis of this factor includes who sets pay amounts and work hours and who determines how the work is performed, as well as whether 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). This is a complex factor that warrants careful review because both employees and independent contractors can have work situations that include minimal control by the employer. However, this factor does not hold any greater weight than the other factors. For example, a worker’s control of his or her own work hours is not necessarily indicative of independent contractor status; instead, the worker must control meaningful aspects of the working relationship. Further, the mere fact that 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.

1099 miscIn addition, there are certain factors which are immaterial in determining the existence of an employment relationship. For example, the fact that 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. Giving a worker a Form 1099 is immaterial to a determination. Likewise, the fact that 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. Additionally, the Supreme Court has held that employee status is not determined by the time or mode of pay.

What are the consequences of  a finding that an employer-employee relationship exists under the FLSA ?

      When an employer-employee relationship exists, and the employee is engaged in work that is subject to the FLSA, the employee must be paid at least the Federal minimum wage of $7.25 per hour, effective July 24, 2009, and in most cases overtime at time and one-half his/her regular rate of pay for all hours worked in excess of 40 per week.

Click here to read about cable installers who were determined to be employees and not independent contractors.

Click here to read about telemarketers who were determined to be employees and not independent contractors.

Click here to read about hotel and motel workers who were determined to be employees and not independent contractors.

IMG_3148Please feel free to call the law office for a FREE strictly confidential consultation about your unpaid overtime wage violations at: (954) 948-8130 or complete the simple form below for submission to us.  Also please be advised that by merely submitting this form, no Attorney-Client relationship is formed with the law firm.   You must provide your name,  home or cell phone number, your email address and your zip code in the form.  We look forward to discussing your overtime pay violations claim and we are passionate about defending and enforcing workers’ rights for unpaid wages.

US DOL recovers more than $1 million in back wages and damages for 196 employees of Bowlin Group LLC misclassified as independent contractors

The U.S. Department of Labor has obtained a consent judgment in federal court ordering Bowlin Group LLC and Bowlin Services LLC to pay 196 employees a total of $1,075,000 in back wages and liquidated damages.

 The judgment resolves a Labor Department investigation conducted by the Wage and Hour Division which found that the defendants misclassified 77 employees as independent contractors and violated the Fair Labor Standards Act by denying those workers and others overtime compensation, and failing to maintain accurate payroll records.

 The misclassification of employees as independent contractors cheats workers of wages and benefits to which they would otherwise be entitled to under the law, subsequently hurting our economy. It also leads to unfair competition because businesses that play by the rules operate at a disadvantage to those that don‘t.

 Bowlin Group LLC maintains its principal office in Walton, Ky., and operates five subsidiaries throughout Ohio and Kentucky. One such subsidiary is Bowlin Services LLC, which until May 2012 performed installation services under contract to Insight Communications, a cable, telephone and Internet provider in Kentucky. The employer classified some of its cable installers as employees but misclassified other installers doing the same work as independent contractors.

 All nonexempt employees, regardless of their classification by the employer as either an employee or independent contractor, were paid based upon the pieces of equipment they installed rather than at an hourly rate. They were thereby denied overtime compensation, which should have been time and one-half their regular rates of pay for hours worked beyond 40 in a workweek. Additionally, the employer failed to keep accurate records of the number of hours worked by each installer as well as employees performing fiber optic splicing, and falsified payroll records to minimize the numbers of hours worked.

The misclassification of workers as something other than employees, typically as independent contractors, presents a serious problem for affected employees and employers, and to the economy, Misclassified employees often are denied access to critical benefits and protections to which they are entitled, such as minimum wage and overtime, family and medical leave, and unemployment insurance. Misclassification of workers may also generate losses to the U.S. Treasury, and Social Security and Medicare funds, and to state unemployment insurance and worker compensation funds.

The Department of Labor and the Internal Revenue Service, through an interagency memorandum of understanding, are working together and sharing general information to reduce the incidence of misclassification of employees, reduce the tax gap and improve compliance with federal labor laws.

Memorandums of understanding with the IRS and state government agencies arose as part of the departments Misclassification Initiative, with the goal of preventing, detecting and remedying employee misclassification. In addition, under the terms of the information-sharing agreement, the department may share specific case information with the IRS.

The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also must maintain accurate time and payroll records. The FLSA provides that employers who violate the law are liable to employees for their back wages and an equal amount in liquidated damages.

If you are a Florida cable installer and would like more information about our legal services in the area of unpaid overtime for misclassified independent contractors you may call 954/946-8130 OR

APPLY ONLINE NOW FOR A CONFIDENTIAL FREE CONSULTATION.

Assistant Managers’ Overtime Claims Settlement For $20.9 Million In Craig v. Rite Aid Corporation Is Preliminarily Approved

WILLIAMSPORT, Pa. – A $20.9 million settlement of 15 lawsuits filed across the country in 30 states  and the District of Columbia alleging that Rite Aid Corp. illegally classified its assistant store managers as exempt in order to avoid paying them overtime wages received preliminary approval June 18 from a Pennsylvania federal judge (Shirley Craig, et al. v. Rite Aid Corporation, et al., No. 4:08-cv-02317, M.D. Pa.). The settlement amount includes attorneys’ fees not to exceed one-third of the settlement fund.