It is a known challenge for employers to draw the line between employees and independent contractors. Misclassification of an employee may result in many adverse legal and financial implications. To navigate this complex landscape, courts and government agencies often employ one of two key tests: the “economic realities” test or the “common law control” test, or a hybrid. Specific factors that may be taken into consideration could include the law, jurisdiction, and authority.
However, employers should always be on watch for alterations in regulations and standards. This includes, for instance, the U.S. Department of Labor’s new rule in the making that will make it more difficult to treat people as independent contractors for legal purposes under the Fair Labor Standards Act and thus unqualified for minimum wage and overtime.
The 5th Circuit Court has signalled a preference in Title VII cases for the common law control test. This test covers the establishment of the company as an employee under Title VII. The evidence of significant control by the company on the “details and means” of the caregivers’ work in the 5th Circuit, which has jurisdiction over Texas, Louisiana, and Mississippi. The company’s activities comprised recruiting caregivers, firing them out, scheduling their days, carrying out orientation and quizzes on policies and further dictating behaviour in the clients’ presence. The firm also conducted yearly performance appraisals and was admonished for poor performance.
The economic realities test, on the other hand, examines whether, in the totality of circumstances, the caregivers are economically dependent on the company. According to the 5th Circuit, the evidence supported this notion. Notably, the caregivers’ work did not require special skills or prior experience, and a high school degree, although preferred, was not mandatory. They were compensated on an hourly basis, provided with necessary supplies, reimbursed for expenses such as mileage and parking, and were not obligated to maintain liability insurance. It’s important for HR professionals to understand that merely having workers sign an agreement labelling them as independent contractors will not automatically alter their status, as emphasized by the 5th Circuit. Furthermore, the court pointed out that not paying the caregivers’ Social Security taxes and failing to provide them with annual leave or retirement benefits do not change their classification as employees.
