Employment Law: Why Labels Don’t Matter.

Businesses often classify persons performing services for them as independent contractors and structure compensation — often on a set fee, per job basis — as one of the justifications for the classification. The difficulty is that the federal Fair Labor Standards Act (FLSA) requires a more nuanced analysis. The recent case of Keller v. Miri Microsystems, Sixth Circuit Case No. 14-1430, decided March 26, 2015, provides an example of just how complex the analysis can be.

Keller worked for Miri Microsystems installing and repairing satellite-internet dishes for its customers six days a week. He was classified as an independent contractor and paid at a predetermined rate per job without regard to the number of hours worked. He was free to accept or refuse jobs and to set his own hours. He used his own van and equipment for the work. He carried his own commercial liability insurance. Keller nonetheless alleged that he was an employee within the meaning of the FLSA and therefore entitled to additional time and a half compensation for hours worked in excess of 40 in a work week. The Sixth Circuit held that, despite the foregoing facts, sufficient additional facts were present for the case to proceed to trial on the question. This holding was the result of applying the so-called economic-reality test.

The economic-reality test examines 6 non-exclusive factors to ascertain whether a person is an employee within the meaning of the FLSA and therefore subject to its protection. They are 1) the permanency of the relationship between the parties, 2) the degree of skill required for rendering the services, 3) the worker’s investment in equipment or materials for the job, 4) the worker’s opportunity for profit or loss, 5) the degree of the alleged employer’s right to control the manner in which the work is performed, and 6) whether the service rendered is an integral part of the alleged employer’s business. All of these are focused on the ultimate question of whether the person has an economic dependence on the alleged employer.

In this case, while he was not required to, Keller did work exclusively for the company for 20 months as he has no time to do other work. He was provided a significant component of his training by the company in order to perform the installations. Keller’s investment consisted only of the use of his wife’s van and tools that are commonly found in households for non-professional work. Further, there was nothing to suggest that Keller could increase his profit through efficiencies or hiring help. Also significant was that the work being performed by Keller was an integral aspect of the company’s business. In fact, installing and repairing dishes was its sole business.

The business may ultimately prevail in this case. But the costs associated with defending it as well as the uncertainty of the result are likely significant business disruptions. It illustrates the need for a studied analysis of a business’s employment practices to avoid such legal complications.