EMPLOYMENT LAW OUTLINE
WHO IS AN EMPLOYEE? WHO IS AN EMPLOYER?
· Employee: classification as an “employee” is a threshold entitled a person to the protection of employment laws
o FLSA Definition of “employ”: suffer or permit to work; FLSA applies to workers engaged in and producing goods for interstate commerce—it establishes wage requirements and child labor laws
· Tests to determine the nature of the employment relationship:
o IRS Control test:
§ Stems from agency principles and looks at the amount of control the employer exercises over the employee to determine if someone is an “employee” or an “independent contractor.” 3 factors to consider:
· 1) Behavioral control: does the employer have a right to direct & control work, primarily by instructing the employer how to do the work? Look at:
o When & where to do the work
o What tools/equipment to use
o What assistants to hire
o Where to purchase supplies/services
o What work must be performed by a specified individual
o What order/sequence to follow
· 2) Financial control: look at
o The extent to which the worker has reimbursed business expenses (independent contractors will have presumably more)
o The extent of the worker’s investment (independent contractors will presumably invest more in tools, implements of the trade)
o The extent to which the worker makes services available to others (independent contractors will presumably market their services to a wider market)
o How the business pays the worker (independent contractors are usually paid a flat fee)
o The extent a worker can make profit/loss (independent contractors generally can)
· 3) Type of relationship: look at
o Whether parties have a written contract describing the relationship they intend to create
o Whether the business provides the worker w/ employment-like benefits (insurance, pension, sick pay, etc.)
o Whether the relationship is expected to be permanent or indefinite (indicating employment) versus for a specific project/period (indicating independent contractor)
· Criticism:the test yields indeterminate results and is rigid & formalistic, not taking context into account
o Economic Realities Test: designed for Fair Labor Standards Act (FLSA) to replace the control test. 6 factors indicate that one is an employee:
§ 1) A limited amount of the worker’s investment in facilities & equipment
§ 2) The nature (close supervision) & degree of control (high) retained/exercised by the company
§ 3) The worker’s limited opportunities for profit/loss
§ 4) The small degree of the worker’s independent initiative, judgment, and foresight in open market competition with others required for the success of the operation
§ 5) A high degree of permanency of the work relationship
§ 6) The broad extent to which the services are an integral part of the company’s business
· Criticism: has the same problems as the test it was purporting to replace
§ Secretary of Labor v. Lauritzen: 7th circuit used the Economic Realities Test to determine whether migrant pickle farmers were independent contractors or employees for the purposes of FLSA. The court said that the migrant workers were employees under the test because for example, the workers are dependent upon the employer’s land, crop, equipment, expertise, marketing, etc.
· Wolf v. Coca-Cola: π is fired computer analyst who was characterized as a “leased” employee, and the ERISA plan specified that only “regular employees” were eligible for benefits. Π was hired through a staffing company and was employed by the company, who had a contract with Coca-Cola for her that only lasted 1-yr at a time. ERISA has a 14-factor test to determine whether someone is an employee for its purposes. The ct found that π was NOT a
ated, and argued that he was hired for “permanent employment” and couldn’t be fired. The court found that unless there is additional consideration or the employment is for a fixed term, then the employment is at-will.
o Things π would have to do to get out of at-will employment: at-will is supposed to be based on contract; look to see if there was mutual assent, the terms are based on party intent; must be offer, acceptance, and consideration
o Today, in every state except Montana, employment-at-will is the assumed baseline legal rule
o If the employment contract stipulates a definite term, or limits the circumstances under which the employer may discharge the employee, the employment is not at-will (oral contracts have the same effect, subject to limitations of the statute of frauds, and usually a requirement that the employee furnished additional consideration beyond mere employment in reliance of those overtures)
IS EMPLOYMENT A CONTRACTUAL RELATIONSHIP?
· *Employers may not designate a workers’ status for the purposes of ERISA & other employment laws by merely contractually affixing a label—the nature of the relationship is what matters*
· Chiodo v. General Waterworks Corp.: centered on a contract for a definite term; Chiodo sold his business and then contracted with the buyer to work for another 10 years for an annual salary. After 3 years, the buyer terminated Chiodo, who sued for breach of contract. The court said that Chiodo was entitled to the remainder of his salary for the stipulated remainder of the term.
