This is a question important to quite a few people and it can invade many areas of employment law. The general rule is that if a worker is an independent contractor, then the Fair Labor Standards Act (FLSA) does not apply. There are no requirements for overtime, minimum wage, tax withholding and employment tax contributions.  However, workers may not like being independent contractors when “overtime” is required and they pay a self-employment tax. However, whether that is lawful or not depends on the workers “economic reality”.

In the 11^th Circuit (Scantland v. Jeffry Knight, Inc., 721 F.3d 1308  (11^th Cir. 2013)), the economic reality factors are:

1.     Control over the Work. Is there control over more than the result of the work? Such as control over the means and methods of performing the work?

2.     Opportunity for Profit or Loss. Does the worker perform this same work for others and has the opportunity for profit or loss based on managing the work?

3.     Investment in Equipment or Materials. Does the worker obtain and use his own equipment or does the employer furnish all of the equipment?

4.     Special Skills. Is the worker in a specialized occupation such a physician, carpenter, contractor, or lawyer etc.?

5.     Permanency and Duration of the Relationship. How long will the arrangement continue?

6.     Integral Part of the Business. How central is the worker to the business operation?

Courts are always careful to say that no single factor is determinative. However, clearly the core question is whether the worker is economically dependent on the employer or is in business for themselves. The case Galarza v. One Call Claims, LLC, No. 1:21-00250-N, (S.D. Ala. Aug. 29, 2023), demonstrated that winning one factor is not enough to demonstrate economic reality. A company, One Call Claims LLC (OCC), was formed to deal with large-scale property damage claims due to a recent storm. It obtained a number of insurance adjusters and examiners to meet the needs that arose.

These workers were all considered independent contractors. While they were required to adhere to OCC requirements as to timely processing of claims as well as ethics, the workers were free to take lunch they wanted.  They also chose when they started and ended work for the day. 

The court found factually important those factors concerning special skills and the ability to perform the work at home and the lack of tight control over the work. These factors leaned towards independent contractor status. The court also noted that when a worker can be more profitable based on efficiency, that tilts more toward independent contractor status. That was the case here. As to investment in equipment, this type of insurance work did not require an intensive investment so that factor was not a key issue. As to permanency in the work, this was a temporary matter to deal with the spike in property damage claims. The last factor, as to whether the workers were an integral part of the business, leaned more toward employee status in this case.

In weighing the factors, the court found more factors went toward independent contractor status.  This case demonstrated that the examination of all factors is clearly critical, as opposed to just one.  Here, the plaintiffs prevailed on one factor, but that was insufficient to win the case.  Their “economic reality' was that they were independent contractors.

When workers are being paid as independent contractors and working what would be overtime if employed, that can certainly raise questions. However, it takes more than the appearance of a ruse to escape the FLSA. The full range of factors must be considered for a good case.

Remember also that there are two ways to move forward. First, complaints regarding these cases can be investigated by the United States Department of Labor (DOL) if detailed information supporting the above factors and violations of the Fair Labor Standards Act are presented. The DOL contends that most cases are resolved administratively. Second, there is the option to file a civil lawsuit, which has a two-year statute of limitations unless the violation is willful, which then extends it to 3 years.