Wednesday, September 2, 2015

Employee or Independent Contractor? 3d Cir. FLSA Edition

Few things in the law are as poorly defined as the distinction between independent contractors and employees. This will be the first post in a series dedicated to that distinction. One of the problems is that courts apply different tests depending on the underlying legal issue. Jurisdiction also matters, and different courts use different factors (not to mention the Department of Labor throwing its two cents in from time to time).

Here in the Third Circuit, when analyzing whether workers are covered by the FLSA's minimum wage and overtime requirements, courts apply the "economic realities" test. Sidenote: check out Judge Easterbrook's concurring opinion in DOL v. Lauritzen (7th Cir.), mocking the whole classification analysis including this money quip: "It is comforting to know that 'economic reality' is the touchstone. One cringes to think that courts might decide these cases on the basis of economic fantasy."

The Third Circuit applies a specific "flavor" of the economic realities test:
Although neither the presence nor the absence of any particular factor is dispositive, we have held that there are six factors to determine whether a worker is an “employee”: 
1) the degree of the alleged employer's right to control the manner in which the work is to be performed; 2) the alleged employee's opportunity for profit or loss depending upon his managerial skill; 3) the alleged employee's investment in equipment or materials required for his task, or his employment of helpers; 4) whether the service rendered requires a special skill; 5) the degree of permanence of the working relationship; 6) whether the service rendered is an integral part of the alleged employer's business. 
Not only should courts examine the “circumstances of the whole activity,” they should “consider whether, as a matter of economic reality, the individuals ‘are dependent upon the business to which they render service.’ ”
Martin v. Selker Bros., 949 F.2d 1286, 1293 (3d Cir. 1991) (internal quotations and citations omitted). And then, of course, employers are expected to "weigh" all of these factors that by their very nature have no actual "weight." Good luck!

I'll cover some more employee vs. independent contractor tests in future posts.