The FLSA is a broadly remedial statute that was designed with the dual goals of raising wages for the economically vulnerable while at the same time increasing employment. To accomplish these goals, the FLSA renders illegal any employment contract involving wages that are lower than the minimum wage or for wages that do not include overtime payments for hours worked above forty per week. As a result, some employers are tempted to work around the FLSA by maintaining that their workers are actually “independent contractors.” While it is true that the FLSA does not apply to bona fide independent contractors, most employers who attempt the “independent contractor” strategy do so at their own peril. This is so because the concept of “employment” under the FLSA is astonishingly broad, and a worker could be an “employee” under the FLSA who would be considered an “independent contractor” under the common law or other federal statutes.
FLSA states that “‘[e]mploy includes to suffer or permit to work.” 29 U.S.C. § 203. This is “the broadest definition of employee that has ever been included in” any federal statute. As a result, courts look beyond the labels that the employer applies and instead consider the “economic reality” of the relationship between the worker and the employer. An employment relationship will be found when the “putative employee is economically dependent upon the alleged employer.”
An interesting application of this doctrine can be seen in Harrell v. Diamond A Entertainment, Inc., where the District Court for the Middle District of Florida found that a topless dancer was an employee and not an independent contractor of the nightclub where she worked. The plaintiff’s only compensation was in the form of tips received while performing stage dances and table dances. Her employer paid her no wage at all, but rather required her to pay a “licensing fee” for each shift that she worked. When the plaintiff filed a lawsuit under the FLSA, the defendant club owner claimed that the she was not entitled to the minimum wage under the FLSA because she was an “independent contractor” rather than an employee.
The court disagreed with the Defendant’s argument and held that “the label attached to the relationship” matters only if it “mirrors the economic reality of the relationship.” According to the court, the worker will be an employee rather than an independent contractor when the worker is “economically dependent” on the employer. Six different factors are used to determine whether the worker is economically dependent: (1) the employer’s degree of control over the worker, (2) the relative investments of the employer and the worker, (3) the degree to which the employer controls the worker’s opportunity for profit or loss, (4) the skill and initiative required to perform the job, (5) the permanency of the relationship, and (6) the degree to which the worker’s job is integral to the employer’s business.
With respect to the first factor, the degree of control, the court found that the defendant club owner had superior control over the plaintiff’s work because the defendant required the plaintiff to abide by detailed rules and regulations, and the aspects of the work over which the plaintiff had control were not “meaningful” in comparison. With respect to the second factor, the relative investment, the court found in favor of the plaintiff because the defendant’s investment in advertising, facilities, and maintenance was far greater than the plaintiff’s investment in clothing, hair styling, and makeup. With respect to the third factor, the opportunity for profit or loss, the court found in favor of the plaintiff because her opportunities for earning more money were limited in comparison with the defendant’s ability to increase revenue by its business decisions. With respect to the fourth factor, the worker’s skill and initiative, the court also found in favor of the plaintiff because establishing rapport with customers and topless dancing were not the kinds of skills that “would set her apart as an independent contractor.” The fifth factor, the permanency of the relationship, also weighed in favor of the plaintiff because she had worked for the defendant for fourteen months. Finally, the sixth factor, the degree to which the plaintiff’s work is integral to the defendant’s business, weighed in favor of the plaintiff because the dancers were essential to the success of the nightclub. In sum, none of the six factors weighed in favor of finding the plaintiff to be an independent contractor. The defendant’s decision to label her as an “independent contractor” (and not to pay her the minimum wage or overtime) did not succeed and instead exposed the Defendant to liability for unpaid wages, liquidated damages, and attorney’s fees.