The Fair Labor Standards Act (FLSA) is a remedial statute, meant to provide a remedy for workers whose employers do not pay employees a fair and reasonable wage for the hours worked and to provide laws governing the compensation of employees, hence the title of the act: The “FAIR Labor” Standards Act. Many businesses seek to avoid obligations to foot the bill for benefits for employees, such as health and disability insurance. Many businesses seek to avoid costly federal payroll taxes and costly workers’ compensation benefits. More importantly, many businesses frankly just seek to minimize labor costs to maximize profits by willfully mislabeling employees as so called “independent contractors.”
What Are the Harms of Being Misclassified as an Independent Contractor?
While a deal may be a deal between the worker and the business/employer, the law is the law and it controls and polices how a worker is required to be paid. The problem with employers who misclassify workers as independent contractors is that such workers’ pay needless taxes on wages, and are cut out from earning social security wages and benefits, as well as unemployment benefits.
Further, when sustaining a work-related injury which should lawfully entitle the employee to tax free, and 100% paid medical benefits, and disability payments, injured works and their families can find themselves destitute and in serious financial and emotional crisis without such coverage. When an employer fails to provide workers compensation benefits which would entitle an employee to tax free disability wages and free medical expenses for the life of an employee seriously injured in a work-related accident, the effects on the employee and his or her family are potentially catastrophic. Clearly companies which provide manual labor type positions would routinely have a significant number of injuries.
The Case of Cable Installers and Exotic Dancers
Cable Contracting companies, and yes, even strip clubs, who have workers engaged in physically demanding jobs clearly shift the risk and the costs of work-related injuries to thousands of workers annually. Recent cases have begun to tip the scales of justice in favor of the misclassified independent contractors.
Example Case A: Hart v. Rick’s Cabaret Int’l, Inc., 2013 U.S. Dist. LEXIS 129130.
Strippers at a New York club are employees and not independent contractors for purposes of the Fair Labor Standards Act.
Southern District Judge Paul Engelmayer held that strippers working at this Rick’s Cabaret were misclassified as independent contractors, and were by legal definition employees entitled to minimum wages. The business owners were unlawfully taking wages and tips from dancers for their own profit and were profiting from the dancing. The Court applied all the facts related to the dancers and the 2nd DCA’s Economic Realties Test for independent contractors set forth in the Fair Labor Standards Act (FLSA), 29 U.S.C. §201, and the state’s Labor Law, (NYLL), §§190 & 650.
The plaintiff class was comprised of 41 opt-in plaintiffs under the FLSA and some 1,900 members under New York law.
The court found that the CLUB exercised control over the dancers through rules, procedures, and the Club’s assessment of fines or penalties. The club controlled where they had to be, when, what shifts, and sharing of tips to the club and its staff.
The Second Circuit has adopted an “economic realities” test to determine whether an individual is an employee or an independent contractor for FLSA purposes. The factors considered include:
(1) the degree of control exercised by the employer over the workers, (2) the workers’ opportunity for profit or loss and their investment in the business, (3) the degree of skill and independent initiative required to perform the work, (4) the permanence or duration of the working relationship, and (5) the extent to which the work is an integral part of the employer’s business. the test is based on a totality of the circumstances” analysis, with the ultimate question being whether the “workers depend upon someone else’s business for the opportunity to render service or are in business for themselves.” Under the totality of the circumstances here, the Court held that the reality of this economic situation is that the Club exercised sufficient control over the dances such that they were deemed to be employees rather than independent contractors. AS such, each dancer was entitled to minimum wages for each hour worked.
Example Case B: Clincy v. Galardi South Enters., 808 F. Supp. 2d 1326:
Exotic Dancers/Strippers Declared to Be Employees by Court Under the Economic Realities Test.
Several factors guide the inquiry into whether an individual is an employee or independent contractor, including:
(1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed;
(2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill;
(3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers;
(4) whether the service rendered requires a special skill;
(5) the degree of permanency and duration of the working relationship;
(6) the extent to which the service rendered is an integral part of the alleged employer’s business.
Here, examining the totality of the circumstances of the work performed by the dancers, the Court concluded that the Club misclassified the dancers as independent contractors. “The Court has found that the Club’s degree of control over the work of entertainers, the entertainers’ opportunity for profit and loss, the entertainers’ relative investment, the lack of specialized skill required to be an entertainer, and the integral nature of nude entertainment to the Club’s business support a finding that an employer-employee relationship existed between the Club and Plaintiffs. Considering these factors that the Eleventh Circuit has identified as relevant, and in light of the record as a whole, the Court finds that Plaintiffs should have been classified as employees under the FLSA.”
The case was then resolved for $1.55 million dollars for upwards of 73 exotic dancers.
Example Case C: Scantland v. Jeffry Knight, Inc., 721 F.3d 1308 (11th Cir 2013).
11th Circuit Declares Cable installers are misclassified as independent contractors and awards judgment to class.
The court of appeals found that the district court erred in its determination. The alleged facts indicated that the contractor controlled what jobs the technicians did, how much they were paid, how many hours and days they worked, their daily work schedule, and whether they could work for others, and that the contractor closely monitored the quality of their work. Any opportunity for profit or less depended more on the contractor’s provision of work orders and the technicians’ technical skill rather than their management skill. The technicians’ investment in equipment and special skills favored independent contractor status, but only weakly. The degree of permanency and duration of the working relationship pointed strongly toward employee status, as did the extent to which the services rendered were an integral part of the contractor’s business.
“Thus, we conclude that, viewing the facts most favorably toward plaintiffs and with all justifiable inferences drawn in their favor, plaintiffs were “employees”-not “independent contractors”-under the FLSA. Because there are genuine issues of material fact, and because plaintiffs were “employees” if all reasonable factual inferences are found in plaintiffs’ favor, the district court erred in granting summary judgment to Knight.”
Example Case D: Bobbitt v. Broadband Interactive, Inc., 2013 U.S. Dist. LEXIS 150854
This case follows Scantland v. Jeffrey Knight and holds that the installers/technicians were misclassified as independent contractors under the economic realities test and the FLSA. It was further pointed out in a footnote that BBI had already voluntarily re-classified the CD Techs as employees back in January, 2011, seemingly and logically as a result of the filing of this lawsuit. Judge Bucklew, following the analysis of the 11th Circuit in Scantland and applying the facts to the economic realities test concluded that the employer, Broadband Interactive Inc. exercised sufficient control over the technicians work such that they should be deemed employees under the FLSA.
The cable installation industry is taking notice. Remember, Knight Enterprises voluntarily re-classified its works as employees. Many other contracting firms are also facing challenges, including Kablelink Communications in Florida, as to which the Court’s in 2 cases entered Orders conditionally certifying the classes.
Employment Law Attorneys Who Know the Harms of Misclassification
Employers may tell workers their exempt status; label them as managers, contractors or the like. However, the application of the FLSA may result in a determination that the employer either intentionally or unintentionally misclassified the workers as independent contractors. Employers continue to reap profits at the expenses of its labor force, and the best recourse for the inequitable situation is for the workers to consult an experienced employment attorney to review the facts and the situation to determine whether there has been misclassification. The misclassified independent contractor may be owed overtime wages, lost fringe benefits, and other compensation. More importantly, the workers will be eligible in the future if successful in their challenge to shared payroll taxes, unemployment benefits, social security benefits and workers’ compensation benefits.
The employment law attorneys at Feldman Legal Group can assist employees who were misclassified. For a free case evaluation, contact us. We serve clients throughout Florida from our offices in Tampa, Jacksonville, Orlando. We serve Georgia clients from our office in Atlanta.