Business Lawyers in Columbus, Ohio
By Andrew D. Randol - May 29, 2019 - Employment & Labor
In Part I of What the Heck is an Independent Contractor? our Columbus employment lawyer emphasized that the IRS and the U.S. Department of Labor (DOL) use a different standard for determining whether a worker is appropriately classified as an independent contractor or an employee. Part II in this series will take an in-depth look at the test used by the DOL as derived from the Fair Labor Standards Act (FLSA) and subsequent case law.
While courts still use traditional agency law principles in assessing whether a worker is appropriately classified, courts primarily look to whether a worker, even when labeled as an independent contractor is, as a matter of “economic reality,” an employee.[1] Although the FLSA’s definition of employee is simply “any individual employed by an employer”[2] courts have interpreted this to mean “that employees are those who as a matter of economic reality are dependent upon the business to which they render service.”[3] This has become known as the economic realities test.
In determining whether or not a worker is an independent contractor under FLSA, courts look to six factors:
1) The permanency of the relationship between the parties. Courts hold that independent contractors generally have impermanent or variable relationships whereas “employees usually work for only one employer and such relationship is continuous and indefinite in duration.”[4]
2) The degree of skill required for the rendering of the services. If significant training or education is required to perform the work then courts will weigh this factor in favor of finding the worker to be an independent contractor. For instance, an electrician has probably obtained some type of vocational degree and needed work experience to become certified in that field. A cook at McDonalds likely had just a day or two of on the job training to learn how to make burgers and fries.
3) The worker’s investment in equipment or materials for the task. This is the extent to which the worker has made a significant capital investment in his or her profession. Is this an individual who is provided everything he or she needs to complete the work, such as tools or a computer? Or did the worker invest significantly in this profession, such as a painter owning his own truck, ladders, and paintbrushes? If the worker has all of his or her own equipment to perform the work, then this factor weighs in favor of the worker being considered an independent contractor.
4) The worker’s opportunity for profit or loss, depending upon his skill. Under this factor, courts consider whether the worker has an opportunity for greater profits based on his management and technical skills.[5] For example, if the worker is simply paid an hourly rate for his or her work, then this factor will weigh in favor of the worker being considered an employee. If the worker is able to make more money by doing the work more efficiently or by hiring his own employees to increase profits, then this factor weighs in favor of finding that the worker is an independent contractor.
5) The degree of the alleged employer’s right to control the manner in which the work is performed. Generally, courts like to ask whether the worker has the right to accept or refuse work, whether the worker can do work for other companies, and whether the company in question supervises the worker’s day-to-day work. The more control the company has over the worker, the more this factor weighs in favor of finding the worker to be an employee.
6) Whether the service rendered is an integral part of the alleged employer’s business. In other words, does this worker perform the main line of work the company is in? A roofer is an integral part of a roofing company and a taxi driver is an integral part of a taxi business. A taxi company will likely need a mechanic from time to time to perform maintenance and repairs on its vehicles, but a mechanic is not an integral part of a taxi business. The company is not in the business of repairing cars, it is in the business of driving passengers from place to place for a fee.
Apart from the six primary factors, courts have also considered whether the business has authority to hire or fire the worker and whether the defendant-company maintains the plaintiff’s employment records.
Despite all of these factors, courts have made it clear that a “central question is the worker’s economic dependence upon the business for which he is laboring.”[6] Although courts have not stated as much, this economic dependence factor seems to dominate all other factors in much of the recent case law.
Therefore, our Columbus employment attorney advises clients to first consider whether any particular person depends entirely, or almost entirely, upon the work performed for the company for his or her livelihood or does this worker perform work for a variety of other companies to the point where he or she cannot be said to be economically dependent upon the company?
Based upon the numerous considerations of the courts, it can be difficult to truly grasp this test and apply it to a real-life scenario. In What the Heck is an Independent Contractor? Part III, our Columbus employment litigation attorney will review how courts have applied these factors in real lawsuits in order to make the test clearer.
Ultimately, properly classifying workers is complex. Employers who pay some workers as independent contractors should engage an employment law attorney in Columbus, Ohio to ensure this classification is correct.
[1] Keller v. Miri Microsystems LLC, 781 F.3d 799, 804 (6th Cir. 2015).
[2] 29 U.S.C. §203(e)(1)
[3] Keller, 781 F.3d at 807.
[4] Id.
[5] Id. 812.
[6] Id. at 807.