Independent Contractors May be Entitled to Employee Status Under the FLSA

An increasing number of individuals are relying on more than one job to handle the economic realities of making ends meet for their households. Recently, the Sixth Circuit Court of Appeals considered the legal implications of employees working “side gigs” and found that, for purposes of the Fair Labor Standards Act (FLSA), some workers, although labeled as independent contractors, may be considered employees.

In Acosta v. Off Duty Police Services (ODPS), ODPS hired both sworn and unsworn police officers for private security and traffic control services in Louisville, Kentucky. The workers would either direct traffic around construction zones or sit in a police-style car with their lights flashing. Both sworn and unsworn officers performed essentially the same tasks, but sworn police officers were generally paid more than those with no background or experience in police work. All of ODPS’s workers were considered independent contractors; therefore, regardless of how many hours they worked per week, they were rendered ineligible for overtime pay under the FLSA.

The Court examined the employment relationship between ODPS and its workers and determined that even though many, if not most of its workers, did not consider ODPS to be their primary employer, they were nevertheless employees of ODPS for FLSA purposes. The FLSA is a remedial statute, meaning that it is intended to make up for labor conditions in the past which did not allow workers to maintain the minimum standard of living required for the health or general well-being of themselves and their families. As such, the definition of what constitutes an “employee” is broader under the FLSA than many other employment laws to give as many workers as possible the benefit of its protections.

As is typical in determinations of whether a worker is an employee or an independent contractor, the Court evaluated many facts specific to the situation to figure out the workers’ classifications. The workers could pick and choose which assignments they wanted based on their schedules, but those who turned down work were often blacklisted for a short period of time. As part of the assignments they accepted, the workers were told where to report, what time to arrive, and who they should talk to on-site. At all times, workers were subject to ODPS’s grooming policies and management. ODPS would sometimes provide the supplies and equipment necessary for assignments like stop signs, reflective jackets, or badge-shaped patches, but workers were required to own their own police-style vehicles.

For unsworn officers who did not already have access to a police cruiser through their day job, they needed to buy their own vehicle which they could then use for personal use off hours. Sworn officers were required to pay to use their department’s equipment during off-hours. Since the nature of the work involved buying a car for some individuals, many remained employed by ODPS for several years—some for more than a decade. Workers were further incentivized to remain since they signed non-compete agreements as part of their independent contractor paperwork which would be in effect for two years after their termination.

In the spirit of the FLSA, the 6th Circuit used an “economic reality” test to determine whether ODPS’s workers should be considered employees. The test considers all circumstances, including: (1) how permanent the relationship is between the employer and the purported employee; (2) the degree of skill required to perform the tasks; (3) whether the worker invested personal funds for required equipment or materials; (4) the worker’s opportunity for merit-based advancement; (5) the amount of control the employer exercised over the purported employee’s performance; and (6) whether the purported employee’s position is necessary for the success of the employer’s business.

After balancing all of the factors using the facts specific to the circumstances, the 6th Circuit found that ODPS’s sworn and unsworn officers were employees under the FLSA’s broad definition. Most of ODPS’s employees remained with the company for an extended period of time, were required to invest personal funds to perform their jobs, were subject to ODPS’s management and policies, and were completely necessary for ODPS’s business. Since the only factors in question that would classify the workers as independent contractors were outweighed by the other factors classifying them as employees, on top of the significant presumption in favor of an employment relationship, the court held that all of ODPS’s workers were subject to the FLSA’s definition of employee and were therefore eligible for overtime compensation.

Previously, courts would only use the economic dependence test, which asks whether an employee is dependent upon his or her employer for a primary source of income to sustain his or her household.[1] If the answer was no, then the employee could retain his or her independent contractor status and would not be entitled to overtime wages under the FLSA regardless of how many hours were worked. This frequently occurs where an employee works more than one job. He or she classifies the higher-paying job as the primary employment; thus almost any other job the worker retains would be deemed unnecessary for the employee’s economic success.

The 6th Circuit recognized that the previous test ignored the economic reality for most individuals working more than one job. Most employees with more than one job maintain them all out of economic necessity—if they could afford to work fewer jobs they would. Therefore, the fact that a worker maintains more than one job should not disqualify him or her from being paid fairly for all jobs. If overtime income is earned, it should be paid accordingly. While not binding in Pennsylvania, the 6th Circuit opinion is a potential indicator of what is to come for workers currently classified as independent contractors within the state. Employers are therefore cautioned to classify workers carefully and ensure that workers earning overtime are paid accordingly.

This article was written with contribution from Sarah Rothermel, 3rd year law student at Widener Law Commonwealth.

[1] See Donovan v. Brandel, 736 F.2d 1114, 1120 (6th Cir. 1984).

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