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Private security officers were employees, not independent contractors—their day job notwithstanding

By Lisa Milam, J.D.

A district court erred in finding that traffic control workers were not “economically dependent” on the security company defendant because they also held day jobs in law enforcement. Having more than one source of income is not controlling.

Private security and traffic control officers were statutory employees under the FLSA, the Sixth Circuit held, regardless of whether they were “sworn” officers who held day jobs in law enforcement or nonsworn officers for whom this job was their sole source of income. In an overtime action brought by the Department of Labor against the security company, a federal court had found that the nonsworn officers were statutory employees but that the sworn officers were independent contractors, as they were not economically dependent upon the security company because they were merely supplementing their main income. The appeals court, however, noted that “whether a worker has more than one source of income says little about that worker’s employment status,” and found the sworn officers also were “employees” entitled to overtime pay (Acosta v. Off Duty Police Services, Inc., February 12, 2019, Stranch, J.).

Off Duty Police Services, Inc. (ODPS) offers private security and traffic control services. The workers who perform these services are classified as independent contractors. Most of the workers are sworn officers, meaning they are employed by some public law-enforcement entity in addition to their ODPS work. Some of the workers are nonsworn officers, with no background (or day job) in law enforcement. Although the nonsworn officers are paid less per hour, they perform the same duties for the company’s private customers: mainly sitting in a car with lights flashing, or directing traffic around a construction zone.

The Department of Labor brought suit contending that the officers were statutory employees under the FLSA and should have been paid overtime. The DOL also contended that the security company violated the FLSA’s recordkeeping requirements. A federal court, following a bench trial, concluded that the nonsworn officers were employees, but that the sworn officers were independent contractors. The Sixth Circuit reversed in part.

Economic realities factors. Five of the six economic realities factors supported a finding of an employment relationship between the security company and all of the officers, the appeals court found. The workers were an integral part of the business and they performed low-skilled jobs at a set rate of pay for fixed periods of time. While the officers had to invest in some specialized equipment such as uniforms and patrol-like cars (although the sworn officers typically used the equipment they used in their day jobs), that expense paled in comparison to the employer’s own investment in the business.

In addition, the company argued that it took considerable skill and training to become a licensed police officer. But the degree of skill a worker possesses does not matter; what is relevant is how much skill it takes to perform the specific duties in question, and the job didn’t call for the skill or training necessary to be a licensed police officer, as evidenced by the fact that nonsworn officers performed the same duties.

Control. The company exercised significant control over the workers, setting their pay rates and schedules, telling them where to go for their assignments, directing them to wear uniforms. There was some consternation over the lax supervision provided by the company, at least as to the sworn officers, some of whom testified they were rarely supervised or disciplined, while others attested they were regularly subjected to supervision. “In what amounted to a credibility contest between the parties’ witnesses, it was not clear error for the district court to conclude that the sworn officers received less supervision and discipline than the nonsworn workers or that the sworn officers on the whole were not supervised closely,” the appeals court wrote. Still, it noted, “such close supervision is not necessary to establish control,” and the amount of supervision needed depends in part on the skills required to perform the job duties—and sitting in a car for hours at a time simply did not require more than periodic supervision, the court reasoned. In the end, it found this factor was neutral.

Profit and loss. The appeals court also rejected the notion that the officers had a genuine opportunity for profit and loss. The company pointed to the fact that the officers could choose to accept or reject assignments and so could manage their workload (and income) accordingly. However, “[d]ecreased pay from working fewer hours does not qualify as a loss,” the court observed. At any rate, a number of officers testified that they would get iced out of future assignments if they rejected assignments, rendering the opportunity for profit or loss illusory, as a practical matter. Furthermore, deciding whether to take or reject an assignment is “a type of managerial action,” but what really matters is whether the worker is able to increase his profits through his own managerial skill. And very little skill is required in deciding whether one is available to take an assignment on a given day, the court noted. Also, the ability to control one’s own schedule may afford a worker the chance to maximize his profits—such as when a worker is paid a flat rate and, through increased efficiencies, can complete more work in a given amount of time—but such was not the case here. The security assignments required the officers “to be present for set periods of time, regardless of what skills they exercised, so workers could not complete jobs more or less efficiently than their counterparts.”

Permanency of relationship. The officers worked for the company consistently over many years; many officers worked for the company for more than a decade. Given this length of time, and the consistency of their work for the security company, the permanency factor supported a finding of employee status. Also, though some of the officers occasionally accepted side jobs from other companies, this was not the kind of scenario where they bounced from company to company performing itinerant work, in typical independent contractor fashion.

But here is where the lower court’s analysis went awry. It erred by merging the permanency factor with the ultimate question of the workers’ economic dependence on the private company, rather than looking at all six of the economic realities factors to evaluate the degree of economic dependence that the workers had on the company, with permanency being just one of the relevant considerations. And it based its economic dependence analysis on an improper consideration of the officers’ day job.

No income-based test. Income is a relevant consideration to the extent it goes to whether the individual in question works for more than one company, which is a factor in determining that worker’s economic dependence on a particular company. But the appeals court rejected the lower court’s conclusion that the sworn officers were not economically dependent on the security company because they had a second source of income. “Many workers in the modern economy, including employees and independent contractors alike, must routinely seek out more than one source of income to make ends meet,” the appeals court noted. “An income-based rule would deny that economic reality.”

Applying such a test would be unworkable, the appeals court added. Using this rubric, a worker would be an employee during times when he or she held just one position, but an independent contractor during periods when he or she worked more than one job. An income test would also mean that wealthy individuals would never be deemed statutory employees, and—more problematic—that employers, to ensure that workers were “independent contractors,” would be incentivized to pay workers low wages so they would be forced to find other sources of income. “That outcome would frustrate the first principles of the FLSA, which is designed to ensure that workers earn a fair wage,” the court wrote.

Recordkeeping violation. The appeals court also reversed the district court’s determination that the employer did not violate the FLSA’s recordkeeping requirements, rejecting as irrelevant its rationale that the company did not knowingly breach the Act in this regard. It also affirmed the lower court’s backpay calculations.