Overtime Pay Upheld to Workers Misclassified as Independent Contractors

The United States Court of Appeals for the Fifth Circuit recently affirmed an award of overtime pay to workers that were misclassified as independent contractors.  The Court upheld the trial court’s ruling that the workers were employees rather than independent contractors because of the degree of control exercised over the workers by their employer.  The workers had been classified as independent contractors and denied overtime pay.  They filed suit under the Fair Labor Standards Act in the Southern District of Texas, seeking their unpaid overtime, as well as liquidated damages and attorney’s fees.

The workers’ employer, A.S.U.I. Healthcare and Development Center, argued that the district court wrongly found that the plaintiffs were employees, claiming that the plaintiffs were hired as independent contractors, and they signed contracts acknowledging that status. However, the appeals court stated that neither a defendant’s subjective belief about employment status nor the existence of a contract designating that status is dispositive. Rather, courts look to multiple factors to assess the “economic reality” of whether the plaintiff is so dependent on the alleged employer that she is an employee or is so independent that the plaintiff essentially is in business for herself. The factors include the “degree of control, opportunities for profit or loss, investment in facilities, permanency of relation, and skill required.”

The court found that A.S.U.I. controlled all the meaningful aspects of the employment relationship. ASUI hired Chapman and Howard, assigned them to their respective group homes, set their work schedule, and determined how much to pay them on an hourly basis and when to increase their hourly rate. There was no opportunity for the plaintiffs to profit beyond their hourly wage, and they were not at risk to suffer any capital losses. Both plaintiffs worked for ASUI for several years, although Chapman had two short gaps in her employment. The plaintiffs’ only investment in the business was the purchase of their uniforms. ASUI, on the other hand, contracted with the state to provide the services; operated a dayhab facility for the clients’ day time use; and maintained a central office headquarters. The Court rejected the employer’s argument that the workers were independent contractors because they were not supervised las to how they should go about cooking and cleaning. The Court found that the economic reality test did not show that the plaintiffs were so independent of ASUI that they were in business for themselves. In sum, the appeals court found that the district court did not err by concluding that they were employees.

As I have noted in prior blog posts, employers frequently misclassify their workers as independent contractors rather than employees to avoid paying employment taxes and overtime.  Any worker classified as an independent contractor who works on a full-time or near full-time basis, is paid by the hour, and works more than forty hours per week should consult with an attorney to determine whether they are entitled to overtime pay.

Josh Borsellino represents workers to get them the overtime pay they deserve.  For a free consultation regarding your unpaid overtime questions, complete this online form or call 817.908.9861 or 432-242-7118.