Atlanta Employment Attorneys Blog
Whether you are an employer or an employee, it is essential to avoid misconceptions that can lead you down a fruitless path when it comes to the Fair Labor Standards Act. Falling victim to these can lead to mistakes regarding what sort of evidence you do need… and what won’t help. Having a knowledgeable Atlanta wage and hour lawyer on your side can be instrumental in avoiding these errors.
Today, we examine alleged worker misclassification under the FLSA and misconceptions about the significance of a worker’s income tax forms (1099 vs. W-2).
R.V. worked for a “mini casino” in Southwest Florida for five years. The casino classified R.V. as an independent contractor and, when they sent her income tax documents showing her annual earnings, they sent her a Form 1099.
Shortly after R.V.’s work ended, she sued the casino for unpaid overtime in violation of the FLSA. The casino responded with a timely motion asking the court to throw out the case entirely.
One of the casino’s arguments for dismissal was that R.V. was an independent contractor and, as a result, was not entitled to overtime compensation under the FLSA. The casino produced the 1099 forms it sent to R.V. each year of her work as conclusive proof that she was an independent contractor.
The court, in refusing to accept this portion of the casino’s argument, explained that a 1099 form was not an automatic ticket to victory in a dispute over a worker’s proper classification. “While relevant, a 1099 form does not inherently disqualify Plaintiff as an ‘employee’ under the” FLSA, the court specifically stated.
‘Economic Realities’ Guide Classification Determinations
To determine if a worker is an independent contractor or an employee, the law requires courts to apply a test known as the “economic realities” test. This test seeks to answer “whether, as a matter of economic reality, the worker is economically dependent on the employer for work (and is thus an employee) or is in business for themselves (and is thus an independent contractor).”
In 2021, the U.S. Department of Labor attempted to simplify this process by creating a new “Independent Contractor Rule.” Instead of focusing on all the “economic realities,” the 2021 rule focused heavily on two: the degree of the worker’s control over the work and the worker’s opportunity for profit (or exposure to loss) based on the initiative and investment the worker put in. In practice, the 2021 rule made it easier for hiring entities to classify workers as independent contractors without violating the law.
In early 2024, the DOL passed a rule that rescinded the 2021 rule. The 2024 rule reinstated the standard that existed before the 2021 rule took effect. Once again, employers and hiring entities should consider all six ‘economic reality’ factors when determining how to classify workers. Those six are:
- The worker’s opportunity for profit or loss depending on their skill.
- The investments made by each of the worker and the hiring entity.
- The extent to which the work relationship is permanent or temporary.
- The extent to which the hiring entity controls how the work is done.
- The extent to which the work is integral to the hiring entity’s business.
- The worker’s skill and initiative.
While a court can consider whether a hiring entity classified a worker as an employer (W-2) or an independent contractor (1099) for income tax purposes, that determination carries relatively little weight on the proper classification for purposes of FLSA compliance. The latter decision will depend on how the court views the six factors listed above.
If you are involved in a FLSA dispute regarding independent-contractor-versus-employee status, the team of Atlanta employee misclassification attorneys at the law firm of Parks, Chesin & Walbert can help. Our attorneys have in-depth, firsthand experience successfully advocating for clients in these types of disputes, so we have the knowledge and skills necessary to guide you to a positive outcome. Contact us through this website or at 404-873-8048 to schedule a consultation today.