UNC LAW – Spring 2014
Defining Employee Status
Employees or Independent Contractors?
a. First Step: Look to see what Act controls in order to determine what test to apply.
b. Second Step: Determine if the individual is an employee or not using the relevant test.
c. There are three different tests to determine employee or independent contractor.
A. Darden Test(Test for all federal statutes other than FMLA/FLSA)
a. Rule: Where Congress uses the term “employee” without really defining it, courts look to the common law rule of what an employment relationship is. (This is true for all statutes except for FLSA and FMLA.)
i. Common Law Rule/Darden Test/Right to Control Test: Factors in determining an employment relationship are not exclusive and no one factor is dispositive on its own. Moreover, the role of custom is important when analyzing the factors to the facts.
1. Right to control manner and means by which a product/task is accomplished
2. Skill required à typically higher skill is a red flag for being an independent contractor.
3. Source of the instrumentalities and tools
4. Location of the work
5. Duration of the relationship
6. Whether hiring party has the right to assign additional projects
7. Extent of the hired party’s discretion over when and how long to work
8. Method of payment (hourly vs. lump sum)
10. Entrepreneurship Opportunity **
11. Whether the work is integral to the business
12. Tax treatment
B. Economic Realities Test (Test for FMLA/FLSA—Lauritzen)
a. Facts: Farmer growing pickles. Sec. of Labor alleges that the migrant workers who harvest pickles on the Lauritzen Farms (D) are employees, and therefore, D is in violation of min. wage requirements, record keeping, and child labor provisions of the FLSA. From July to Sept., migrant families handpick the pickles and are compensated at one-half of the proceeds that D realizes on the sale of the pickles that the migrants harvest on a family basis. Some of these families have children under the age of 12 working alongside them. Towards the end of the season, migrant workers are given a bonus to stay, but many leave. Planting, fertilizing, irrigation, etc. is done by workers that are not the migrant workers. D supply migrant workers with free housing and equipment. Migrant workers only have to buy their own work gloves.
1. NOTE: under a lot of these statutes, migrant workers would be excluded because they exclude agriculture. However, FLSA does not exclude agriculture. The argument for interpreting a statute based on its purpose though ultimately fails in future cases.
ii. Economic Realities Test: Employees are those who as a matter of economic reality are dependent upon the business to which they render service.
1. Level of control:
a. Exclusivity during season (not a slam dunk for employment because this can happen with independent contractor).
b. Family decides who, when, what
2. Workers opportunity for profit/loss (entrepreneur issue)
a. D argument: up to the worker to make more profits.
b. Court: no investment though and therefore there was no opportunity for loss. Most employees can increase pay by working hard (not as a direct as this). Unlike an entrepreneur, the migrant workers don’t have the opportunity to lose money.
i. If it were a situation where they had to lease the rights to pick the pickles à there is a more profit/loss situation that would cut against employment relationship.
3. Equipment and Materials
a. Invested in just gloves: cuts for employment relationship
4. Special Skill Required
a. Helps the workers because it is low skill. There are plenty of employees that are good at their jobs. Being good at job does not increase the skill level.
b. Remember: just because you do have some special skills, however, does not mean you are not an employee. That said, as skill level goes up, it is more likely that the person is an independent contractor. High skill level is a red flag.
5. Permanency and Duration
a. This is not a case where you have people working all year, but they keep returning year in and year out. This is some degree of permanency, but it obviously is not as helpful as having someone w
i. Small employer exception: under the ADA: Title VII has a 15 employee threshold. Can discriminate away if you have less than 15 employees. Have to be careful about state law though.
d. Supreme Court: When Congress gives a bad definition of employee, we look to the common law to determine if there is an employment relationship. Going to modify the Darden test because this is an issue dealing with differentiating employee from employer rather than employee and independent contractor. Used a modified Darden test:
i. Courts will often defer to what an agency decides on a tricky question. This is exactly what the court does here when it looks to the EEOC who had already formed factors for this Q. EEOC in their guidelines has 6 factors in determining when partners, officers, boards of directors, and major shareholder qualify as employees:
a. EEOC Rule for Determining Employee or Employer: whether the individual acts independently and participates in managing the organization, or whether the individual is subject to the organization's control.
1. Whether the organization can hire/fire the individual or control their work
2. To what extent the organization supervises the individuals work (part of control).
3. Whether the individual reports to someone higher in the organization
4. To what extent the individual is able to influence the organization
5. Parties intent to whether the individual is referred to as an employee is in written agreements or contracts
6. Whether the individual share in profits/losses/liabilities of the organization.
a. Liability is often times removed now. Really going to focus on the profit and loss question.
b. How might a law partner lose money?? Look at the buy-in.