Being Classified as an Independent Contractor Instead of an Employee Denies Workers Important Benefits and Protections Under the Law

There is an increasing trend in this country for employers to misclassify employees as independent contractors. Workers who are misclassified as independent contractors are often denied important benefits and protections under the law, such as minimum wage, overtime compensation, family and medical leave, and unemployment insurance. The federal and state governments also lose tax revenue and funding for state unemployment insurance and workers’ compensation funds as a result of misclassification. However, some employers opt to misclassify employees as independent contractors to cut costs and avoid the need to comply with labor laws.

Under the Fair Labor and Standards Act (“FLSA”), courts use an “economic realities test” to determine if a worker is an employee or an independent contractor. While no one factor is determinative, several factors are considered, including whether the worker is economically dependent on the employer or in business for himself or herself. The Supreme Court and Circuit Courts of Appeals consider the following elements when applying the “economic realities test:” 1) the extent of control of the employer over the worker; 2) the permanency of the relationship between the employer and worker; 3) the extent to which the work is integral to the employer’s business; 4) the worker’s opportunity for profit or loss depending on managerial skill; 5) the extent of investments by both parties; and 6) the degree of skill and initiative required to perform the job. Courts consider these factors in their totality and no one single factor is determinative.

On July 15, 2015, the U.S. Department of Labor issued a memo regarding the misclassification of employees as independent contractors. It reiterated that courts generally describe independent contractors as having businesses of their own and enjoying economic independence. In general, independent contractors use their managerial skills to maximize their opportunities for profit. Moreover, independent contractors also typically invest and risk loss to their businesses.

Employees, by contrast, perform tasks that are integral to a business. A worker can carry out these integral tasks away from an employer’s premises. These tasks can be a very small component of the employer’s business.

Employees can also maximize their earning potential by working more. Their earnings do not depend on their independent judgment, but on an employer’s need for work. While employees can experience a reduction in earning potential, courts distinguish between earning potential of an employee and the loss to an independent contractor’s business.

Some employers argue that a worker’s special skill set or initiative is enough to classify him or her as an independent contractor. However, having technical skills alone is insufficient to make this determination. An independent contractor uses his or her special skills to, for example, further an independent business.

Employees also have a permanent or definite relationship with their employer. They may only work for a few works, but the relationship is definite because employers can terminate and exercise control over their employees. An independent contractor is an independent business person, in general. They typically work from project to project and are economically independent of the employer.

Many employers misclassify their workers as “independent contractors,” thereby stripping those workers of benefits and legal rights. Hunter Pyle Law has handled numerous cases involving the misclassification of independent contractors. We have successfully represented individuals throughout the state. If you have any questions about your situation at work, please do not hesitate to contact us.