The way we work in America is changing. The relationships between companies and their workers are more fluid and varied than in decades past. Our task in this appeal is to apply traditional legal protections to one such relationship.
So starts the 6th Circuit’s opinion in Acosta v. Off Duty Police Servs., which applies the traditional “economic realities” test to determine whether private security and traffic control officers are employees or independent contractors.
One would think that with such a pronouncement at the head of the 6th Circuit’s opinion, the court would be making a startling pronouncement broadening the landscape of who qualifies as an independent contractor.
Those making that assumption, however, are sorely mistaken.
The “economic realities” test balances six factors:
- The permanency of the relationship between the parties
- The degree of skill required for the rendering of the services
- The worker’s investment in equipment or materials for the task
- The worker’s opportunity for profit or loss, depending upon his skill
- The degree of the alleged employer’s right to control the manner in which the work is performed
- Whether the service rendered is an integral part of the alleged employer’s business
In balancing the factors, the court determined that all of ODPS’s private officers were employees, and none qualified as independent contractors.
1. Permanency of the Relationship
This factor examines the length and regularity of the working relationship between the parties. While some ODPS workers accepts jobs intermittently and for short terms, many worked for ODPS long-term, and some for decades without interruption. In addition to length, many ODPS workers did so with regularity (e.g., 20 – 25 hours per week, or even up to 50 hours per week). These facts mitigated against the fact that many ODPS was not many workers’ primary job or their primary source of income. Yet, according to the court, multiple sources of income is not dispositive, and using such a fact to deny employment status would ignore the “economic reality” that many workers need two (or more) sources of income just to make ends meet. Thus, the court concluded that this factor weighed in favor of employment status.
2. Degree of Skill
The evidence showed that the workers required little skill to render services. Workers only need four hours of training, and many have no background in law enforcement whatsoever. The workers described the jobs as either sitting in their cars with their lights flashing, or patrolling a parking lot spotting potential problems. Thus, this factor weighed heavily in favor of employee status.
3. Investment in Equipment and Materials
This factor compares the worker’s total investment to the company’s total investment. While the officers needed to buy their own equipment and provide their own vehicles, each only invested between $3,000 and $5,000 of their own money, compared to the hundreds of thousands of dollars ODPS spent to operate the business. Thus, this factor weighed in favor of employee status.
4. Opportunity for Profit and Loss
Courts evaluate this factor by asking if workers “could exercise or hone their managerial skill to increase their pay.” ODPS argued that workers could do so, because they had the discretion to reject assignment, thereby limiting their ability to increase their pay. The court, however, was not persuaded. That discretion, according to the court, is not managerial skill. Moreover, because the workers worked a set shift when they accepted work, they had no control over how much they earned based on how long they worked. They could not earn more by completing the job more quickly and moving on another assignment. Their skill did not increase their ability to complete their jobs and accept more, it merely gave them discretion to say yes or no to jobs when offered. Thus, this factor weighed in favor of employee status.
5. Alleged Employer’s Degree of Control
This factor asks whether the company “retains the right to dictate the manner” of the worker’s performance.” ODPS maintained policies and procedures, which addressed: (1) the type and color of uniform that may be worn, (2) vehicle and light requirements, (3) rules for exchanging job assignments with other ODPS workers, and (4) general rules on workplace presentation and conduct. ODPS also represented to its customers that it would inspect the work sites and supervise its workers.Workers testified that ODPS disciplined them for violating work rules, such as declining jobs. ODPS 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, and had supervisors to whom they reported. Workers were also required to sign non-compete agreements, and ODPS had sued former workers to prevent them from working for competitors. Thus, for the majority of ODPS’s workers, this factor weighed in favor of employee status.
6. Integral Part of the Alleged Employer’s Business
ODPS built its business around the security and traffic control services provided by its workers. It could not function or service its customers without them. Therefore, this factor weighed heavily in favor of employee status.
Balancing the evidence, the 6th Circuit had little difficulty concluding that ODPS’s workers were its employees, and not independent contractors: “Taking all these factors into consideration with an eye on the ultimate question of economic dependence, ODPS’s workers … were employees entitled to overtime wages under the FLSA.”
Off Duty Police Servs. serves as a stark reminder for employers that in all but the clearest of cases, businesses take a huge wage-and-hour risk by classifying workers as anything other than employees. The way we work might be changing, but the risk you take by misclassifying employees as independent contractors is staying exactly the same.