In this post, it is a brief overview limited solely to understanding whether you are being misclassified as an independent contractor rather than an actual employee of the company paying you. The example described below is focused on unpaid overtime wages due to the misclassification of an employment relationship (independent contractor vs. employee) under the Fair Labor Standards Act (“FLSA”). Should you have questions about your employment status (whether you are an independent contractor or employee), feel free to contact either office of Bryant Legal, LLC to discuss your unique wage and hour scenario with an employment attorney.
When Employers Deliberately Misclassify Employees in an attempt to Cut Costs, Everyone loses.
The misclassification of employees as independent contractors presents a very serious problem facing affected workers, employers and the entire economy. Misclassified employees often are denied access to critical benefits and protections to which they are entitled, such as the minimum wages, overtime wages, family and medical leave, unemployment insurance, and safe workplaces. Employee misclassification generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds. It hurts taxpayers and undermines the economy.
The blurred lines from the fissured workplace make achieving compliance with the wage and hour laws a difficult task. Intense competition between business models like subcontracting, temporary agencies, labor brokers, franchising, licensing and third-party management leads to low pay, and noncompliance pulls down standards for all – making it difficult for responsible employers to survive in low margin, fiercely competitive conditions. The costs in this race to be the lowest bidder are borne by workers deprived of their wages and their rights.
Issue: Misclassification of Independent Contractors instead of Employees
According to the Department of Labor, between 10% and as high as 30% of employers may misclassify their employees as “independent contractors.” That means that workers misclassified as independent contractors are wrongfully denied access to important benefits and protections (such as minimum wages and overtime wages). For example, when a worker is determined to be an “employee” and works in excess of 40 hours per week, he or she is entitled to overtime wages. The misclassification is important because he or she would not have previously been entitled to overtime wages as an independent contractor. However, when the economic reality is that of an employee, the worker is entitled to the benefits he or she previously missed out on due to the misclassification.
Fair Labor Standards Act (“FLSA”) Definitions Overview:
In order for the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay provisions to apply, an employment relationship must exist between the “employer” and an “employee” (e.g. the worker).The FLSA’s definition of “employ” includes “to suffer or permit to work.” As such, The FLSA definition of employ was specifically designed to broadly cover as many workers as possible. That means that most workers are employees under the FLSA.
Importantly, you are only entitled to overtime wages and minimum-wage compensation if you are an “employee.” An independent contractor cannot enjoy the FLSA’s protections.
Solution: Determine Your Employment Status. Are You an Employee or Independent Contractor?
A worker is an “employee” if he or she is economically dependent on the employer, whereas a worker is an “independent contractor” if he or she is in business for himself or herself. Thus, it is the economic reality (the “economic realities test” explained below) of the worker’s relationship with the employer that determines whether the worker is economically dependent on the employer (and therefore, an employee) or is in the business for himself or herself (and therefore, an independent contractor).
The Sixth Circuit Court of Appeals (which covers Michigan, Ohio, Kentucky, and Tennessee), broadened the scope of the employee/employer relationship and narrowed the independent-contractor definition. Specifically, the Sixth Circuit follows the “economic realities” test for determining whether an individual is an employee or an independent contractor. Under this test, courts consider six factors when determining if you are an employee or misclassified as an independent contractor:
- the permanency of the relationship;
- the degree of skill required;
- the worker’s investment in equipment or materials;
- the worker’s opportunity for profit or loss;
- the degree of the alleged employer’s right to control the manner in which the work is performed; and
- whether the service rendered is an integral part of the alleged employer’s business.
Each factor has its own analysis and will be considered under the totality of the circumstances.
Example of Misclassification of Independent Contractors – You may be Missing Out on Important Benefits (such as Unpaid Overtime Wages).
In the context of unpaid overtime wages, in Keller v. Miri Microsystems LLC a satellite dish installer agreed to provide his services as an independent contractor, but later filed a lawsuit against the installation company claiming he was actually an employee entitled to substantial overtime pay under the Fair Labor Standards Act (FLSA). Even though the installer provided his own vehicle, tools, and equipment; could set his own schedule; was not required to wear a uniform; could work for other companies; and was able to hire his own staff, the Sixth Circuit found that it was possible he was misclassified as an independent contractor. In reaching that conclusion, the court found it significant that the installer never turned down an assignment and worked full-time for the company for twenty months. The court also noted that, even though the installer was free to work for others, his geographic location made accepting other work difficult. The court further reasoned that providing the installer with training to obtain a necessary certification was more consistent with employee status. Similarly, the court held that because the installer typically followed the work schedule he received from the company, and the company guaranteed his work, a jury could conclude that the company’s control over the installer was consistent with an employee classification.
At Bryant Legal, LLC, we ensure you are informed of your rights with respect to minimum wages, overtime wages, and other workplace benefits so that we can both protect and assert your rights. If you would like to speak with an employment attorney regarding you wage and hour issue, utilize the contact form and submit a confidential inquiry.