Blanchard & Walker: Fighting Payroll Fraud for Independent Contractors

Blanchard & Walker: Fighting Payroll Fraud for Independent Contractors

Blanchard & Walker lawyers have been fighting for over a decade to secure the rights of cable technicians and other laborers who have been deprived of overtime pay by the use of “independent contractor” labels.  Still, we are amazed by the depth of the problem and astonished to hear how extreme and widespread the abuse of “independent contractor” classifications has become.   Writing for Slate, author Virginia Sole-Smith has done an excellent job to document the scope and extent of predatory misclassification of employees.

With one swift re-classification, the otherwise “employers” are able to reduce costs related to unemployment insurance and workers’ compensation, and even avoid obligations to pay overtime. Or so some would assume. In fact, the protections of the FLSA are not dependent on the company’s discretion in picking job titles. Persons designated as “independent contractors” and other workers wrongly deprived of overtime pay have a legal right to recover the wages stolen through illegal misclassifications by their employers.

Most federal courts confronting these new employment models have analyzed a worker’s “employee” status under the FLSA using the “economic realities test.”[1]  The test has become the accepted standard for determining whether an independent contractor is entitled to overtime pay or other protections of the FLSA. Under the previous administration, the Department of Labor issued guidance on application of the economic realities test[2], only to be later withdrawn.  Although the intricacies of the test have varied among the federal circuit courts, the test generally involves six primary questions:[3]

1) Is the Work an Integral Part of the Employer’s Business?

2) Does the Worker’s Managerial Skill Affect the Workers Opportunity for Profit or Loss?

3) How Does the Worker’s Relative Investment Compare to the Employer’s Investment?

4) Does the Work performed Require Special Skill and Initiative?

5) Is the Relationship between the Worker and the Employer Permanent or Indefinite?

6) What is the Nature and Degree of the Employer’s Control?

The inquiry focuses on whether, as one court has explained it, “the work done, in its essence, follows the usual path of an employee.”[4]   Following this thread, other courts have noted that, the employer’s label is not even relevant as a “tie breaker” since the FLSA is “intended to defeat rather than to implement contractual arrangements.”[5]  Likewise, the designations workers use on their tax forms with the IRS are irrelevant to the analysis.[6] Where courts have misapplied the test, workers who are not truly in business for themselves – from drivers and laborers to cable installers and even exotic dancers – are deprived of their rightful wages under the FLSA.

“Independent contractor” classifications and contractual disclaimers are irrelevant.  If you work like an employee, the FLSA requires you get paid like an employee.  Obtaining workplace protections and the overtime wages typically owed to the misclassified independent contractor will depend on careful advocacy and guidance from an experienced FLSA litigator.  If you have been working as an “independent contractor” a “1099 employee” or other classification used to justify denial of overtime pay and would like answers about your individual legal rights, you should contact an employment lawyer.

[1] Brock v. Superior Care, Inc., 840 F.2d 1054, 1058 (2d Cir. 1988); Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1383 (3d Cir. 1985); Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 304 (4th Cir. 2006); Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th Cir. 2008); Ellington v. City of E. Cleveland, 689 F.3d 549, 555 (6th Cir. 2012); Sec’y of Labor, U.S. Dep’t of Labor v. Lauritzen, 835 F.2d 1529, 1534 (7th Cir. 1987); Donovan v. Sureway Cleaners, 656 F.2d 1368, 1370 (9th Cir. 1981); Baker v. Flint Eng’g & Const. Co., 137 F.3d 1436, 1440 (10th Cir. 1998); Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311 (11th Cir. 2013).

[2] Administrator’s Interpretation No. 2015-1 (Dep’t of Labor July 15, 2015).

[3] See, e.g., Donovan v. Brandel, 736 F.2d 1114, 1117 (6th Cir. 1984); Brock, 840 F.2d at 1058-1059.

[4] Scantland, 721 F.3d at 1311 (quoting Rutherford Food Corp. v McComb, 331 U.S. 722, 729 (1947)).

[5] Imars v. Contractors Mfg. Servs., 165 F.3d 27, at *5 (6th Cir. 1998) (unpublished) (quoting Lauritzen, 835 F.2d at 1544-45 (Easterbrook, J., concurring)).

[6] See, e.g., Clincy v. Galardi S. Enters., Inc., 808 F. Supp. 2d 1326, 1349 (N.D. Ga. 2011) (finding that the plaintiffs’ holding themselves out to the IRS as independent contractors does not make them independent contractors for FLSA purposes); Harrell v. Diamond A Entm’t, Inc., 992 F. Supp. 1343 (M.D. Fla. 1997) (“[Plaintiffs’] characterization for tax purposes and the provision of employee benefits are not relevant.”); see also Robicheaux v. Radcliff Material, Inc., 697 F.2d 662 (5th Cir. 1983) (welders were “employees” under FLSA even though they signed contract stating they were independent contractors, furnished their own equipment and insurance coverage, were self-employed on their tax returns and had their own business cards); Gordilis v. Ocean Drive Limousines, Inc., No-12-cv-24358, 2014 WL 2214289, at *4 (S.D. Fla. May 28, 2014) (“The factors governing “economically dependent” do not ponder personal tax returns. Moreover, it is entirely possible Plaintiffs were simply wrong in their preparation of their tax returns.”).