This week, we feature a guest blog written by Colleen M. Arnett from the law firm Livorno and Arnett Co., LPA, a CALMC member. The issue of whether workers are employees or independent contractors is becoming increasingly common as some employers prefer the financial savings and flexibility offered by using contract employees. They are often used to circumvent labor contracts or benefits.
Ms. Arnett examines a facet of this issue, the eligibility of employees or contractors to receive overtime pay. We thank her for sharing her insights with us and allowing us to share it with you;
The question of whether a worker is an employee, or an independent contractor, seems to be arising more often. The distinction is very important. If the worker is an employee, he/she is covered by the FLSA (overtime laws) and other laws relating to benefits for employees. If the worker works more than 40 hours per week, the worker is entitled to overtime. If the worker is an independent contractor, those laws, including the overtime laws, do not apply. The worker does not get paid overtime, regardless of the number of hours worked.
In Acosta v. Off Duty Police Services, Inc., decided on February 12, 2019, the Sixth Circuit Court of Appeals dealt with the issue of whether safety forces working special duty through a private firm were employees or independent contractors. Safety forces at times may work special duty. The special duty may be provided through their public employer, but other times it may be arranged through a private entity. If they are working through a private company, the question is whether they are employees of that private company, or are they independent contractors.
The Court held that all of the workers for a company called Off Duty Police Services, Inc. (ODPS) were considered “employees” under the Fair Labor Standards Act (FLSA).
ODPS offers private security and traffic control services in Louisville, Kentucky. Most of ODPS’s workers are sworn officers, which means they work for some law-enforcement entity in addition to working for ODPS. Darrell Spurgeon, the founder and vice-president of ODPS, collects assignments for the workers by contracting with businesses in and around Louisville. He uses “schedulers” to keep track of these customer’s work requests, and also classifies the “schedulers” as independent contractors. Workers can choose to accept or decline a job, although witnesses testified that Spurgeon would discipline them if they declined work.
ODPS tells workers where to report, when to show up, and whom to speak with when they arrive. ODPS sometimes provides the workers with supplies and equipment, including stop and go signs and reflective jackets. However, they must pay for other equipment. Sworn police officers usually drive their police cruisers, but nonsworn workers must buy a “police style vehicle” with their own money.
Workers follow the customer’s instructions, comply with ODPS standards, and occasionally submit to the supervision of other ODPS workers. Both Spurgeon and Frank Medioeros, who helps manage the business, sometimes visit job sites to monitor workers’ compliance with ODPS policies. In some instances, workers have been disciplined for failing to comply with the ODPS dress and grooming policies.
Following a completed assignment, workers send Spurgeon their invoice with the number of hours spent on the job. ODPS ordinarily uses these invoices to pay workers an hourly wage, though sometimes they are paid per project. The practice of using invoices started only after the Department of Labor (DOL) began investigating ODPS’s recordkeeping practices.
Workers sign an “independent contractor agreement. ODPS considers all these workers to be independent contractors and has never paid them overtime wages.
The Court looked to the “economic reality” test to determine whether a worker, even when labeled as an “independent contractor” is as a matter of “economic reality” an “employee.” This test considers six factors: 1. The permanency of the relationship between the parties; 2. The degree of skill required for the rendering of services; 3. The workers’ investment in equipment of materials for the task; 4. The worker’s opportunity for profit or loss, depending upon his skill; 5. The degree of the alleged employer’s right to control the manner in which the work is performed; 6. Whether the service rendered is an integral part of the alleged employer’s business. None of these factors is determinative on its own. Each must be considered “with an eye on the ultimate question-[the worker’s] economic dependence on or independence from” the employer.
The Court addressed each of the six factors when analyzing this case.
- Integral Part of Business: ODPS built its business around the security and traffic control services provided by its workers, and therefore could not function without the services its workers provide.
- Degree of Skill Required: Although some of the employees are licensed police officers, the services provided by ODPS generally do not require the skill or training of a licensed police officer. This is demonstrated by the fact that some of ODPS’s workers have no background in law enforcement and its workers are only required to attend a four hour training session before they begin work.
- Investment of Specialized Equipment: While nonsworn workers were required to obtain police-style clothing and vehicles, which requires some investment, sworn workers already had the necessary items and required little to no capital investment. Additionally, the vehicles-which they simply parked and sat in for hours at a time-required no specialized mastery. Therefore, the limited investment in specialized equipment favors employee status for sworn and unsworn workers.
- Permanency of Relationship: Although workers accepted jobs intermittently, they often worked for ODPS for years, or decades at a time. For multiple nonsworn workers ODPS had been their sole employer for years at a time, and many sworn workers reported working consistently for ODPS throughout the year. In addition to length, the regularity of the workers’ relationship with ODPS favors employee status.
- Opportunity for Profit or Loss: While the decision to accept or reject work is a type of managerial action, the relevant question is whether workers could increase profit through managerial skill. ODPS workers had no such opportunity. Assignments required workers to be present for set periods of time, regardless of what skills they exercised. Therefore, workers could not increase profit through managerial skill because “[t]here was no way [workers] could finish a shift more efficiently or quickly in order to perform additional paid work.” Likewise, workers don’t appear to have been at risk of a loss based on their decision to work or not work.
- Right to Control: ODPS has a “policies and procedures” document stating that a worker’s noncompliance with the policies would “result in immediate termination.” ODPS also set the rate at which the workers were paid, would tell the workers where to go for the job, when to arrive, and whom they should contact when they got there. The workers were also periodically supervised by Spurgeon and Medieros and were required to comply with certain dress and grooming policies. However, according to the testimony, the level of control and supervision was exercised over nonsworn workers rather than sworn workers for the most part. This makes is hard for the Court to conclude whether or not all workers were “employees” as to this particular factor.
When balancing all six factors, the Court concluded that five of the six economic reality factors support finding an employment relationship between ODPS and all its workers. Taking these factors into consideration, the Court determined that ODPS workers, both sworn and nonsworn, were employees and entitled to overtime wages under the FLSA.
Acosta provides the framework for deciding whether individuals working for a private entity are employees or independent contractors of the private firm.
If you have questions or thoughts for Ms. Arnett, please post them here and we will forward them to her. We want to thank Colleen for providing this information and her insights.
We also invite any of you who have information related to their work with labor and management to share their ideas with our readers. Just email them to us in Word or text format.