The Sixth Circuit Court of Appeals in Keller v. Miri Microsystems, LLC, No. 14-1439 (6th Cir. 2015) clarified the distinction between an independent contractor and an employee under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §207. The distinction is important as employees are entitled to certain benefits under the FLSA (such as overtime pay), while independent contractors are not.
In Keller, a satellite dish installer agreed to work as an independent contractor to an installation company, but later filed a lawsuit against the company claiming he was an employee and entitled to overtime pay under the FLSA.
The Court found that the fact that the worker was labeled as an independent contractor was not determinative, and remanded the case back to trial court to determine whether or not the worker should be treated as an employee and entitled to overtime benefits.
Upon remand, the trial court will apply the economic-reality test, which is the test to determine whether or not someone is an employee for purposes of the FLSA. There are six factors that are considered and weighed under the economic-reality test.
1) the permanency of the relationship between the parties;
Generally, a more permanent relationship weighs in favor of a worker being an employee.
2) how much skill is required to perform the job in question;
Skill-level is another indicator because situations in which a worker’s profits increase based on initiative, judgment or foresight tend to support a finding that the worker is an independent contractor.
3) the worker’s personal investment in equipment or materials for the job;
Comparing the amount of capital put into a job by the worker and by the employer is also an indicator. If the worker has invested a significant amount of his own capital into equipment or tools for the job, he is likely to be considered an independent contractor. This usually does not include equipment necessary for the job that can also be used by the worker for unrelated purposes, such as a vehicle.
4) the worker’s opportunity for more or less profit depending upon his skill;
The greater control a worker has over the profitability of their job, the more likely they are to be considered an independent contractor.
5) the degree of the alleged employer’s right to control the manner in which the work is performed; and
The greater control a worker has over his schedule and manner of performing work, the more likely he is an independent contractor.
6) whether the services in question are an integral part of the alleged employer’s business.
The more integral the worker’s services are to the business the less likely he is an independent contractor under the FLSA. In addition, the court sometimes considers additional factors such as whether or not the business had authority to hire or fire the worker and whether or not the business maintains the worker’s employment records.
It is important to know these factors because a business-owner could be violating FLSA regulations without knowing it and unexpectedly be liable for things such as overtime pay to workers they believed were independent contractors. It is also important for workers to know their rights under FLSA’s broad definition of employee, which was meant to prevent unfair labor practices.
