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Independent Contractors

Last month, a New York federal court in Saleem v. Corporate Transp. Grp., Ltd., 2014 WL 4626075 held that drivers for a “black car” business were independent contractors, rather than employees, under both the FLSA and New York Labor Law.  The drivers claimed that their employer misclassified them as independent contractors, entitling them unpaid overtime and other wage claims.

We’ve explained the test for determining independent contractor versus employee status in a few of our earlier posts.  The “economic realty test,” which is one of the various tests courts apply, considers (1) the degree of control exercised by the employer over the worker; (2) the worker’s opportunity for profit or loss and investment in the business; (3) the degree of skill required to perform the work; (4) the permanency of the working relationship; and (5) whether the worker contributes services that are an integral part of the business.  The analysis in Saleem provides a good illustration of how courts will apply these factors to determine employee or independent contractor status.  Here is what the Saleem court considered:

(1) Control—this factor weighed in favor of classifying the drivers as independent contractors.  The employer only exercised limited control over the drivers.  The drivers could set their own schedules, hire other drivers to work on their behalf, and take vacations whenever they wanted—even without notifying the employer.  They had no obligation to accept any job, and they could also freely work for other transportation companies. Even though the employer did require the drivers to periodically inform them of the status of their assignments, the court still found that this factor weighs slightly in favor of independent contractor status.

(2) Opportunities for loss or profit—the court found that the drivers had an opportunity for profit or loss.  Because they were not guaranteed a set amount of work under their franchise agreements, the drivers could ultimately control their income with the amount of jobs they accepted.  The drivers also invested money into the business by buying, renting, or maintaining cars and paying fees associated with their for-hire drivers licenses.

(3) Skill—this factor did not weigh in favor of employee or independent contractor status. While the drivers were not required to have a high degree of skill, they did need to exercise a high degree of independent initiative.  Because the drivers were not required to accept any particular job, they had to independently take affirmative steps to secure jobs in order to be successful.

(4) Permanence of the relationship—this factor weighed in favor of independent contractor status.  Even though the drivers had franchise agreements with the employer for many years, they could quit working at any time.  The fact that the drivers could work for other companies also weighed in favor of independent contractor status.

(5) Integral part of the business—this last factor favored employee status, as the employer could not operate the business without the drivers’ work.

After weighing the factors and looking to the totality of the circumstances, the court determined that the drivers were properly designated as independent contractors and accordingly dismissed the drivers’ FLSA claims.

Source: Larry S. Perlman & Tamar N. Dolcourt, FLSA Case Is A Guide To Using Undependent Contractors, LAW360 (Oct. 17, 2014)

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