Florida Business Litigation Lawyer Blog
A common dispute that arises in overtime and minimum wage litigation is whether an individual hired by the defendant is an independent contractor or an employee. Many companies choose to hire independent contractors to perform work instead of hiring employees. Because independent contractors are not considered “employees” under the Fair Labor Standard Act (“FLSA”), the minimum wage and overtime wage provisions of the FLSA do not apply to independent contractors. Hiring independent contractors might also be beneficial to companies for tax purposes. However, as many companies have learned through litigation, labeling a worker an “independent contractor” will not automatically preclude that individual from being considered an “employee” under the FLSA.
Courts look to the “economic realities” of the relationship between the company and the individual the company hired to determine whether the individual is an “employee” or an “independent contractor.” To determine whether the individual is an employee as a matter of economic reality, courts consider the following 6 factors: (1) the degree of control exercised by the company on the individual; (2) the individual’s opportunity for profit and loss based on managerial skills; (3) the individual’s investment in equipment or personnel; (4) the skill required to perform the work; (5) the duration of the relationship between the company and the individual; and (6) whether the services performed by the individual are integral to the company’s business.
As the 6 factors suggest, the determination of whether an individual is an “independent contractor” or “employee” depends on the specific facts of each case. Adding more complexity to the analysis, courts do not mechanically apply the six factors. The weight that courts attribute to each factor ultimately depends on the court’s analysis and on the facts of each case. A good example of the distinction between “employee” and “independent contractor” is detailed in recent cases regarding adult entertainers. For example, in Stevenson v. Great Am. Dream, Inc., 2013 U.S. Dist. LEXIS 181551 (N.D. Ga. Dec. 31, 2013), a class of adult entertainers sued the nightclub that hired them (the “Nightclub”) for minimum and overtime wages. The court analyzed the facts in the case in relation to the six factors detailed above and found that the entertainers were “employees” because 5 of the 6 factors of the economic reality test suggested “employee” status.