Some of the troubles discussed in this Newsletter can be fixed by passage of the Employee Misclassification Prevention Act (the “Act”), which was introduced in April 2010 in the United States Senate.  The Act currently sits in the Senate’s Committee on Health, Education, Labor, and Pensions.  Pennsylvania Senator Robert is one of the Act’s co-sponsors.

If passed, the Act will amend the FLSA to require companies to, among other things, keep records of all individuals (regardless of their IC classification) who perform labor or services for the company and notify all individuals of their employment classification and their rights under the law.  The Act also contains other important provisions, such as  making it unlawful for a company to discharge or otherwise discriminate against any individual who complains about his/her IC classification and doubling the amount of liquidated damages a misclassified IC can recover in court.

Senator Tom Harkin (D-Iowa), who chairs the Senate Committee and supports the Act’s passage, has correctly observed that IC misclassification “cheats workers out of important labor protections, like the right to overtime pay and worker’s compensation, and robs federal and state governments of desperately needed tax revenues.”  Chairman Harkin believes the Act will “level the playing field for responsible employers who play by the rules.”  Let’s hope he’s right.

Please contact your Senators and Congressperson and tell them that you support the Employee Misclassification Prevention Act!!!

When the Boss misclassifies a worker as an “independent contractor” (“IC”), he does so at the expense of the worker, the worker’s family, American taxpayers, and competing companies.  Here’s how:

• Workers’ Compensation Benefits:  The IC classification enables the Boss to avoid paying for workers’ compensation insurance.  This is all “well and good” until a work injury devastates the worker’s family and reaps havoc on our health care system.

• Overtime Pay:  As already discussed, the IC classification enables the Boss to avoid paying time-and-one-half overtime pay FLSA.  As such, IC abuse circumvents the FLSA’s policy of reducing unemployment by creating a financial disincentive against overtime work.  Meanwhile, the Boss obtains a competitive advantage over law-abiding competitors.

• Family Medical Leave:  ICs are not covered by the Family and Medical Leave Act (“FMLA”), which allows an employee up to 12 weeks of unpaid leave to care for herself or an ailing family member.

• Unemployment Benefits:  ICs are not entitled to unemployment benefits.  Thus, by misclassifying employees as ICs, the Boss avoids unemployment insurance payments at the clear expense of working families.

• The Right to Unionize:  The National Labor Relations Act (“NLRA”) gives employees the right to join a union without risk of retaliation.  But IC’s have no such protection, and companies that misclassify employees as ICs gain an unfair advantage over their law-abiding competitors.

• Protection from Unlawful Discrimination:   IC’s are not covered by our Nation’s most fundamental anti-discrimination laws, such as Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act.  What a great tragedy for misclassified ICs and what an affront to our core principles.

• Employer Health and Welfare Benefits:  Many companies provide employees with fringe benefits like pension plans and health insurance.  But ERISA, the federal law overseeing employee benefit plans, does not apply to ICs, and, as such, companies routinely deny health and retirement benefits to ICs.

• Social Security and Medicare Payments:  The IC classification enables the Boss to circumvent FICA withholdings and, most significantly, the employer’s share of these basic social welfare programs.

In view of the above, IC abuse is nothing short of tragic for the American worker and for us as a society.  How can we allow millions of American families to be improperly and unnecessarily denied our Nation’s most basic workplace rights?

This edition of the Wage and Hour Quarterly is dedicated entirely to an illegal practice that costs America’s taxpayers and working families billions of dollars every year:   The misclassification of employees as “independent contractors.”

Tens of millions of workers are classified as “independent contractors.”  So it’s no surprise that Trial Lawyers and workplace justice advocates regularly encounter this huge segment of the American workforce.  Unfortunately, we often fail to evaluate whether these purported “independent contractors” have been misclassified.

For example, a workers compensation lawyer might end her case evaluation upon determining than an independent contractor’s injury was not work related.  This is unfortunate, since the individual might be entitled to thousands of dollars in unpaid wages and benefits due to the Boss’s misclassification of her employment status. 

Regardless of your practice area, common sense enables you to identify potential independent contractor misclassification cases.  In a nutshell, if it seems like the Boss is exerting significant control over the worker’s day-to-day work activities, the potential for misclassification exists.  At this point, you can either: (i) analyze the worker’s circumstances in more detail (applying some of the principles described in this Newsletter) or (ii) refer the client to The Winebrake Law Firm, knowing that we always treat workers with dignity and respect and always pay a fair referral fee.  

As explained below, the Boss has many reasons to misclassify his workers as independent contractors.  One of the most significant reasons is to avoid paying time-and-one-half overtime compensation for work performed in excess of 40 hours during the workweek.  The Fair Labor Standards Act (“FLSA”), which is the federal overtime law, does not cover independent contractors.  However, a worker does not lose his overtime rights just because the Boss labels him an “independent contractor.  The FLSA is a law of “striking breadth,” and company labels mean almost nothing.  As one appellate court has observed, the FLSA contains “the broadest definition [of employment] that has ever been included in any one act.”

Whether an employer truly is an independent contractor under the FLSA depends on the “economic realities” of her work experience, not the language of her employment contract.  The Third Circuit Court of Appeals has instructed Pennsylvania district courts to apply a six-factor test to determine whether a worker has been properly classified as an independent contractor.  The six factors include:

   (1) the extent of the company’s control over performance of the work;

   (2) the worker’s opportunity for profit or loss depending upon her managerial skill;

   (3) the worker’s investment in equipment or materials required for her task and her employment of helpers;

   (4) whether the service rendered requires a special skill;

   (5) the permanence of the working relationship; and

   (6) whether the service rendered is an integral part of the company’s business.

Applying factors such as those listed above, federal courts frequently invalidate the Boss’s abuse of the “independent contractor” classification.  For example, in one recent case, New Orleans workers who repaired telecommunications and cable lines in the wake of the Hurricane Katrina disaster alleged that they were misclassified as independent contractors.  The Fifth Circuit Court of Appeals held that the workers were employees entitled to FLSA overtime benefits.  The Court emphasized that the workers were employed full-time and exclusively for the defendant employer, were economically dependent on the defendant employer, and did not have any meaningful opportunity to operate their own businesses.  This is just one of the hundreds of independent contractor misclassification cases that have been successfully litigated in the federal courts.

The Winebrake Law Firm has successfully litigated FLSA independent contractor cases.  For example, we recently obtained a settlement on behalf of 13 satellite dish installers who sought overtime pay, alleging that they were misclassified as independent contractors.  In another case, we obtained a settlement for over 20 janitors who were classified as contractors.  We currently are pursuing a lawsuit in a Texas federal court on behalf of over 25 medical product sales representatives who were classified as independent contractors.  And we represent over 30 allegedly misclassified delivery drivers in another case pending in a Pennsylvania federal court.

If you represent workers who you believe may have been misclassified as independent contractors, don’t hesitate to give is a call.

The overtime pay requirements of the Fair Labor Standards Act (“FLSA”) cover millions of American workers, including thousands of workers who have been misclassified as “independent contractors.”  If you represent workers who have been designated as independent contractors, you should be aware of the “striking breadth” of FLSA coverage.  As one appellate court has observed, the FLSA contains “the broadest definition [of employment] that has ever been included in any one act.”

 Whether an employer truly is an independent contractor exempt from overtime coverage depends on the “economic realities” of her work experience, not the language of her employment contract.  The Third Circuit Court of Appeals has instructed Pennsylvania district courts to apply a six-factor test to determine whether a worker has been properly classified as an independent contractor.  The six factors include:

    (1) the extent of the company’s control over performance of the work;

   (2) the worker’s opportunity for profit or loss depending upon her managerial skill;

   (3) the worker’s investment in equipment or materials required for her task and her employment of helpers;

   (4) whether the service rendered requires a special skill;

   (5) the permanence of the working relationship; and

   (6) whether the service rendered is an integral part of the company’s business.

 Recent court decisions demonstrate the continued viability of FLSA independent contractor cases.  For example, in April 2007, a Florida district court granted summary judgment in favor of a worker hired to provide maintenance services at trailer park facilities, reasoning that the defendant company exerted substantial control over the plaintiff’s work, which required no special skill.  Likewise, in March 2007, a Texas district court granted summary judgment in favor of a group of insurance agents who alleged that they were misclassified as independent contractors, reasoning that the agents “did not exercise any meaningful control over the insurance business they allegedly ran” and that the insurance company “retained control over major variables that determined [the agents’] ability to make profit, held them captive to the business, and made them dependent on [the company] for their success.”  Even more recently, a Nevada district court conditionally certified an FLSA collective action brought on behalf of a class of commercial painters, observing that “the labels parties use in contract documents do not control whether overtime pay is required by the FLSA.”

 The Winebrake Law Firm has successfully fought for workers allegedly misclassified as independent contractors.  For example, in May 2007, a Pennsylvania district court approved an FLSA settlement on behalf of thirteen clients who sought overtime pay, alleging that they were misclassified as independent contractors.  Likewise, in In re. FedEx Ground Package System, Inc. Employment Parctices Litig., MDL 1700 (N.D. Ind.), The Winebrake Law Firm, working with co-counsel throughout the country, seeks to recover overtime benefits on behalf of FedEx delivery workers who allege they were misclassified as independent contractors. 

If you represent workers who you believe may have been misclassified as independent contractors, you should contact a law firm with experience litigating wage and hour cases.

Just read a great opinion reversing a district judge’s summary judgment dismissal of an overtime lawsuit in which who repaired telecommunications and cable lines in the wake of the Katrina disaster alleged that they were misclassified as independent contractors.  The opinion is entitled Cromwell v. Driftwood Electrical Contractors, Inc., 2009 U.S. App. LEXIS 22389 (5th Cir. Oct. 12, 1009).  Applying the “economic realities” test, the Circuit Court emphasized that the cable workers worked full-time and exclusively for the defendant employer and, as such, were economically dependent on the defendant employer and did not have any meaningful opportunity to operate their own businesses.