Whether a worker is an employee or an independent contractor is a threshold question with regard to overtime: employees have to be paid overtime and independent contractors do not. The Sixth Circuit uses what it calls the "economic reality" test to distinguish between employees and independent contractors; there is no bright-line test, only an amalgam of factors to consider and apply in varying factual scenarios. The recent case of Acosta v. Off Duty Police Services illustrates.
Off Duty Police Services (ODPS) offers private security and traffic control services in and around Louisville, Kentucky. A typical work day might consist of "sitting in a care with the lights flashing or directing traffic around a construction zone." Both active, sworn police officers and nonsworn individuals work for ODPS doing the same type things; the sworn police officers are paid more and many people had worked regularly for ODPS for over a decade.
When someone needed ODPS's services they would go through a scheduler, who, in turn, would contact workers who met the needed qualifications. The workers could either accept or reject the offer, but there was important evidence that anyone declining a job offer would be punished, which meant no offers would be forthcoming for a while, a practice referred to as being placed in "time out."
ODPS provided some gear and equipment, but the workers had to provide some of their own, an example being an ODPS-branded shirt, the cost of which was deducted from their pay. They had to provide their own police style vehicles, which cost the nonsworn workers from $3000 to $5000.
There was minimal supervision by ODPS. At the job site, the workers had to follow the customer's instructions and wear a uniform; they were subject to grooming restrictions which were enforced occasionally.
The workers were required to sign "independent contractor agreements" when they started working for ODPS; these agreements included noncompete provisions.
The district court ruled that the sworn police officers were independent contractors, while the nonsworn personnel were employees. The Sixth Circuit reversed as to the former and affirmed the latter.
The "economic reality" test applies six factors: 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 task; 4) the worker's opportunity for profit or loss, depending on his skill; 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 in an integral part of the alleged employer's business. We turn to these from the easiest to the most difficult.
- Integral Part of the Business - this asks whether the worker is doing what is the company's business, or could the company function without the services the workers provide. Since ODPS was about and only about providing the services the workers provide, this "factor cuts heavily in favor of finding an employment relationship between ODPS and all its workers."
- Degree of Skill Required - ODPS required only a four hour training session for its workers, a reality favoring "employee status for all of ODPS's workers."
- Investment in Specialized Equipment - This factor compares the worker's and the company's total investments. The biggest cost to the workers was the police-style vehicles that the nonsworn individuals had to obtain, which cost about $3000 to $5000, an amount, as the district court found, paling in comparison to ODPS's annualized business expenses of around $200,000.
- Permanency of the Relationship - although intermittent, at least theoretically, many of the ODPS's workers worked only for it and many more had worked for it for well over a decade. The permanence factor favors employee status.
- Opportunity for Profit or Loss - This considers whether the worker can get better at his job such that he can make more money doing it than someone else can. This weighed in favor of employee status, because "ODPS's jobs required limited skill, experience or initiative" and, in any event, the workers received a set hourly wage.
- Right to Control the Work - This requires consideration of whether the company tells the worker how and when to do the job. The practice of punishing the worker (placing them in "time out"), the noncompete provision in the contracts and the dress and grooming policies tipped the analysis in favor of employee status for the nonsworn individuals but was in equipoise for the sworn workers.
Robert L. Abell
www.RobertAbellLaw.com