The United States Court of Appeals for the 2d Circuit recently issued a decision that could potentially save certain business owners both money and stress. The 2d Circuit, which encompasses the states of New York, Connecticut, and Vermont, in a recently decided case (Saleem v. Corporate Transportation Group, Ltd.) provided guidelines for employers as to whether their workers are employees or independent contracts. The issue of classification of workers as an employee or independent contractor is significant. For example, an independent contractor is exempt from minimum wage and overtime requirements. Further, such a classification can have significant tax consequences for a business. The above-referenced case clarifies longstanding issues regarding classification workers as employees or independent contractors. The hope is that the by issuing said guidelines, the Court will help employers avoid troublesome allegations of misclassification.
The case involved a driver service and its workers. Corporate Transportation Group and its affiliate companies (CTG) run a black-car service in the New York City area. The Company requires its drivers to sign a contract that acknowledged they were “not an employee or agent” of the company “but merely a subscriber to the services offered” by CTG. The drivers filed a class action lawsuit against CTG seeking unpaid overtime pay pursuant to the federal Fair Labor Standards Act (FLSA) and New York state wage and hour law.
In its decision, the Court established a three pronged analysis for determining whether a worker is an independent contractor or an employee. The Court initially noted that any independent contractor misclassification dispute arising under the FLSA must be examined under an “economic realities” test. The Court then listed the following three factors to be crucial to its decision:
- The Drivers Had Entrepreneurial Opportunities Not Available to Employees;
- The Drivers Made A Heavy Investment In Their Business and;
- The Drivers Maintained A High Level Of Flexibility.
The Court cautioned however, that its ruling was based on the fact-specific “totality of the circumstances” comprising the relationship between CTG and the drivers in this specific case. “In a different case, and with a different record, an entity that exercised similar control over clients, fees, and rules enforcement in ways analogous to CTG might well constitute an employer within the meaning of the FLSA.”
As a result it is clear that each case is to be determined on a case by case basis. Further, there is a lot of gray area as to how each of the above-referenced guidelines may be applied to difference business. Each case can turn on several variables. It is always best to consult an experienced employment attorney. If you have questions regarding employee or independent contractor classificication status, or are facing potential misclassification issues, call Gilbert Law Group today at 631.630.0100.
The Department of Labor (DOL) has issued new guidelines, Administrator’s Interpretation 2015-1 detailing its interpretation of the “economic realities” test as it relates to the misclassification of workers. The guidance expands on the six factors in the test, emphasizing that the main issue is whether the worker is “economically dependent on the employer or truly in business for him or herself.” The vague definition of “employ” found in the Fair Labor Standards Act (FLSA) combined with the totality of the circumstances considered in the test means that most workers are considered employees, the DOL commented. The expansive reading of what constitutes an employee will likely generate an increase not only in DOL oversight but worker lawsuits as well. The DOL has been cracking down on worker misclassification by issuing severe penalties on employer’s who label a worker as an independent contractor rather than an employee for the consequential tax benefits. So how does one determine whether a worker is an employee or independent contractor?
“In sum, most workers are employees under the FLSA’s broad definitions,” the DOL said. “The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor. The factors should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus its employee). The factors should be used as guides to answer that ultimate question of economic dependence.”
The six factor test is complex, and many times whether a worker is an employee or an independent contractor can turn on several variables. For help navigating through issues related to worker misclassification and whether a worker is an employee or independent contractor, call Gilbert Law Group today at (631)630-0100.
The National Labor Relations Board has “redefined” the test it uses for determining whether workers performing services for an employer are to be considered employees, who are covered by the National Labor Relations Act, or independent contractors, who are not. The case is FedEx Home Delivery, 361 NLRB No. 55 (2014). This is a significant decision because of its broad application in labor law in determining the status of workers in both representation cases and in unfair labor practice cases.
The Board took the opportunity in this case to make some key legal points about the evidence of economic opportunity for gain or loss from the perspective of the worker:
(1) The multifactor test articulated in the Restatement (Second) of Agency § 220 (1958) has traditionally been employed by the NLRB and the courts in making and reviewing employee/independent contractor determinations under the NLRA. The Board stated that it would simply consider entrepreneurial opportunity along with the Restatement factors, but would not grant it overriding “animating” importance, as it accused the DC Circuit of doing.
(2) The Board further held that any claimed entrepreneurial opportunity of the individuals in question must be real, not merely theoretical. The Board will look at employer imposed and other structural factors which act as an impediment to the genuine existence of entrepreneurial opportunity. Further, in representation cases, the Board will consider evidence regarding only the individuals in question (here, those in a requested bargaining unit), and not system wide or extra-unit evidence. (It is to be expected that a similar limitation will be imposed in unfair labor practice proceedings where no bargaining unit issue is in play.)
(3) Finally, Board said that it will look at the work being done by the individuals in question and ask whether they are truly performing it in the same way as a bona fide independent business would.