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Contractual arrangement not determinative of worker’s independent contractor status

March 25th, 2012  |  Ron Miller

The contractual arrangement between a worker and the company he works for is not determinative of the status of the worker as a independent contractor for purposes of the FLSA and other laws intended to protect employee. In a recent Texas case, Neman v Greater Houston All-Pro Auto Interiors, LLC, a federal district court rejected an employer’s contention that its contractual designation of the employee as an independent contractor, as well as evidence that he signed a W-9 form as an individual/sole proprietor, was determinative of his status. Rather, the court concluded that the employee pled sufficient facts to state a plausible claim under the Fifth Circuit’s “economic reality” test that he was an employee.

“Economic reality” test. To determine whether a worker qualifies as an employee of a particular employer, a court “focuses on whether, as a matter of economic reality, the worker is economically dependent upon the alleged employer or is instead in business for himself.” To aid in this inquiry, the Fifth Circuit considers five non-exhaustive factors: (1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship.

In Neman, the worker pointed out that the company controlled and set his work schedule, required that he be stationed at a CarMax location during the workday, and required that he use CarMax’s offices and body shop for his work. Moreover, he asserted that the employer’s employees made sure he was at the CarMax location during his scheduled work hours and that the employer set the prices for repairs and issued him a PDA on which to enter work orders and repair details from CarMax. Additionally, he was required to wear a uniform provided by the company, used tools provided by the company, received training on how to repair upholstery using the company’s techniques, was required to sign a non-compete agreement, was provided marketing materials, and was required to report his whereabouts to the company in case of emergency. The worker’s pleadings also showed that his role as an “interior repairman” did not require significant initiative.

Consequently, the court ruled that the worker presented sufficient facts to support a finding that he was an employee under the FLSA and not an independent contractor, in denying the company’s motion to dismiss his claim for overtime compensation. In this instance, the court determined that the facts alleged by the employee showed that the employer had significant control over his work, required him to wear its uniform, to apprentice under one of its technicians, provided him with tools to fulfill work orders, and set his work schedule and the price of the work he performed. Consequently, these allegations were sufficient to give rise to a plausible claim that the repairman was an employee under the FLSA.

Employment relationship. Couriers for a delivery company in Florida obtained a similar result. In Dobbins v Scriptfleet, Inc, a federal district court in Florida denied an employer’s motion to dismiss claims that a courier did not plead sufficient facts to demonstrate an employment relationship under the FLSA with respect to her allegations that she and other similarly situated couriers were misclassified as independent contractors and that the employer had failed to pay overtime compensation in violation of the Act.

Reviewing the company’s motion to dismiss with respect to the courier’s claim that the employer violated the FLSA by mischaracterizing her and other couriers as independent contractors rather than non-exempt employees, the court determined that the question of the employee’s employment status was more appropriately decided at the summary judgment stage or at trial. Here, the court noted that the employee alleged that couriers were subject to the employer’s control and were economically dependent on the employer. The couriers were allegedly required to wear the employer’s uniforms; rent equipment from the employer; were assigned routes by the employer; purchased insurance through the employer; followed its rules, regulations, and policies; and were subject to disciplinary action for failure to comply with the rules.

Additionally, the company’s claim that the courier failed to allege sufficient facts to state a claim for unpaid overtime wages was also rejected by the court. The court ruled that the courier was not required to alleged facts related to “what hourly wage [she] was paid, an estimate of how many hours [she] worked for which she was not compensated, and whether the employer had actual or constructive knowledge of the alleged uncompensated overtime.” Rather, the court concluded that the allegations that the courier’s duties were non-exempt in nature and that she was misclassified as an independent contractor were sufficient to give the employer notice of the nature of the FLSA claim and the grounds upon which it rested. Accordingly, the court determined that she had stated a claim for unpaid overtime wages sufficient to withstand the employer’s motion to dismiss.