Many public agencies supplement their workforce with independent contractors. Since independent contractors who perform services are not employees, agencies do not have to pay them according to the requirements of the Fair Labor Standards Act (FLSA). If the contractor does not meet the qualifications for “independent contractor” status, the worker must be treated as an employee for FLSA purposes. Often, employers mistakenly believe that they have properly designated an individual as a contractor because they have a services contract that says the worker is an independent contractor. However, job titles and contract terms do not determine whether a worker is truly a contractor.
The 9th Circuit Court of Appeals, which covers California, recently held that the most important factor in determining whether a worker is an employee or independent contractor is control. In Ruiz v. Affinity Logistics Corp., truck drivers of the company sued for unpaid wages and other benefits under the FLSA and California law. The drivers argued that Affinity wrongfully classified them as independent contractors, and that instead they should have been classified as employees. In order to determine whether the truck drivers were employees or independent contractors, the Court of Appeals considered a number of factors and held that the most important factor is whether the employer maintains the right to control the work being performed by the worker. The more control the employer has over the worker’s manner and means of work, the more likely it is that the worker is an employee as opposed to an independent contractor.
The Court of Appeals in Ruiz held that the truck drivers were misclassified as independent contractors because the company exercised significant control over their work. The company decided the days the drivers worked and retained discretion to deny requests for days off. It set the drivers’ rates and did not permit them to negotiate it. In addition, the company set the drivers’ routes and told them not to deviate from them, required them to report to the company’s warehouse and attend meetings, and required them to wear uniforms and follow the company’s grooming and dress code. The company also supervised the drivers while they were loading their trucks and required them to call their supervisors every two or three steps.
The Court also concluded that the secondary factors in the applicable test for determining whether an employer-employee relationship exists also weighed in favor of finding that the drivers were employees. These factors include:
- whether the worker is engaged in a distinct occupation or business;
- the kind of occupation and whether the work is done by a specialist without supervision or under the principal’s direction;
- the skill required in the occupation;
- whether the principal provides the tools and place of work;
- the length of time for which services are performed;
- the method of payment, whether by time or by job;
- whether the work is part of the principal’s regular business; and
- whether the parties believe they are creating an employer-employee relationship.
The factors examined by the 9th Circuit to determine independent contractor status are similar to the “totality of circumstances” test adopted by the U.S. Department of Labor (DOL) when evaluating contractor status for purposes of the FLSA. Although the DOL has indicated no single factor is regarded as controlling, the factors considered under the test include:
- the nature and degree of control by the employer;
- the extent to which the worker’s services are an integral part of the employer’s business;
- the permanency of the relationship;
- the amount of the worker’s investment in facilities and equipment;
- the worker’s opportunities for profit and loss; and
- the level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
Despite the multiple factors a court will examine, the answer to the question of whether a worker is a bona fide independent contractor will often turn on one factor: control. If your agency is currently using independent contractors, consider seeking legal advice regarding whether the classification is proper. In addition to having substantial FLSA consequences, improperly classifying workers as contractors can result in liability under other laws such as the Public Employees’ Retirement Law, the Affordable Care Act, workers’ compensation laws and anti-discrimination and harassment laws.