LEGAL BOUNDARIES OF THE EMPLOYMENT RELATIONSHIP
Employees Versus Independent Contractors
First question to ask is whether the person is an employee or independent contractor. Then, determine jurisdiction and specific statute that applies to suit.
– In order for an employment-at-will relationship to exist, there must be an employer and an employee, and they must have an employee-employer type of relationship.
– FLSA defines employee as “any individual employed by an employer” – “to employ includes to suffer or permit to work.”
– Secretary of Labor v. Lauritzen – Federal Pickle Case (Seventh Circuit)
o Migrant families are picking pickling cucumbers – the defendant has been accused of violating record-keeping and child labor laws (Fair Labor Standards Act – FLSA). The defendant claims that the FLSA does not apply to him because the migrant workers are independent contractors and not employees.
o Seventh circuit court uses a six factor test to determine whether a person is an employee (not used by FLSA)–
§ (1) Control: the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed;
· Has the employer relinquished control of the operations?
· *** Control is the key in these types of cases. ***
§ (2) Profit and Loss: the alleged employee’s opportunity for profit or loss depending on his managerial skill.
· Is there a real risk for loss sufficient to satisfy status as an independent contractor?
§ (3) Capital Investment: the alleged employee’s investment in equipment or materials required for his task, or his employment of workers
§ (4) Degree of Skill Required: whether the service requires a special skill
§ (5) Permanency: the degree of permanency and duration of the working relationship.
§ (6) Integral to Defendant’s Business: extent to which the service rendered is an integral part of the alleged employer’s business.
o Application of Factors to the Facts in this Case:
§ Control: workers came to fields, landowner was called “boss” and employees thought he could fire them. Landowner did not relinquish control.
§ Capital Investment: only bought gloves; not investment capital.
§ Degree of Skill Required: not a high degree of skill, therefore does not change relationship.
§ Permanency: workers returned year after year.
§ Integral to Defendant’s Business: picking crops is very necessary to the business.
o Based on these factors, the court concludes that the migrant workers are employees, therefore the FLSA applies.
§ Note: FLSA does not include this six factor test in its definition of an employee.
o The court relies on economic reality to determine the basis of the various factors – the economic reality is that the migrant workers (employees) depend on the landowners (employers). Workers depend on the defendant’s land, crops, agricultural expertise, equipment, and marketing skills.
§ Have to look at the whole circumstances of activity viewed in the light of “economic reality” to determine if there is an employer-employee relationship.
o Easterbrook Concurrence – Easterbrook has some problems with how the majority is going about this; his basic issue is that the court should have used the Restatement rather than the six factors based on economic reality.
– IRS Guidelines – Employer has tax consequences if deemed employee. If IC, the employer does not have to withhold.
o Social Security Withholding, IRS has a 20 factor test to determine whether or not a person is an employee.
o Class Hypo: nanny-gate, is a nanny an employee?
– Are volunteers employees? Courts generally determine that volunteers are not employees because there is no compensatory relationship and the volunteer basically has complete control over the relationship (he can leave at any point without any economic consequences).
– Partner in a Firm: who does a partner work for? Him/herself or the partnership? It depends – look at factors.
– Wolf v. Coca-Cola (Eleventh Circuit) – computer analyst working at Coke but employed by Access (a staffing company); computer analyst is terminated and she sues Coke for benefits under ERISA; Coke claims she is an independent contractor and not an employee.
o Coke’s Argument – Analyst wore a different badge, she wasn’t invited to the holiday party and she was paid by Access.
o In order to receive ERISA benefits, the individual:
§ (1) must be an employee, and
§ (2) they must be a participant in the plan
(See ERISA elements on p. 31 fn. 2)
o The computer analyst does not fall within either of these requirements.
o Coke makes very clear in its ERISA plan that it only applies to regular employees – not temporary employees, therefore this computer analyst does not have a claim.
– As an employer, you want to be careful how you classify people. If an independent contractor and not an employer, make this very clear.
– Benefits v. Costs of Having Small Number of Employees and More IC’s
o Benefits to Leasing Employees:
§ Avoid Statutes like FMLA, FLSA
§ Flexibility in Firing
§ Tax Advantages (social security)
§ Screening Costs Reduced (hiring a temporary worker to see how they do)
§ Health and Retirement Benefits
o Cons to Leasing Employees:
§ Training or expenses put into that worker will be lost
§ No sense of attachment to the company – can lead to less stable workforce
– Zheng v. Liberty Apparel Co. (same test used in Secretary of Labor v. Lauritzen)
o Were the contractors hired to stitch fabric considered “joint employers” within the meaning of FLSA and NY law? – *control*
§ Whether the employer’s premises and equipment were used for P’s work;
§ Whether the business can shift as a unit to another employer;
§ Whether responsibility under the Ks could pass from one subcontractor to another without material change
§ The degree to which the work is supervised;
§ Whether Ps worked exclusively or predominantly for D.
o More expansive test established in Brock; more factors used to determine if an employee-employer relationship exists:
§ Degree of control exercised by the employer over the workers;
§ The workers opportunity for profit or loss and their investment in the business;
§ The degree of skill and independent initiative required to perform the work;
§ The permanence of duration of the working relationship;
§ The extent to which the worker is an integral part of the employer’s business (look for job specialty).
– Limitations to Employment Laws
o There are a minimum number of employees that are required to fall under certain labor statutes (usually determined by using a geographical area):
§ FLSA – level of business standard (about $500,000 in business transactions)
§ FMLA – 50
§ ADEA – 20
§ Title VII – 15
§ ADA – 15
o Part-time/full-time: if an employee is on the payroll for any amount of hours then he/she is counted as an employee.
o Each statute
§ Regular attendance
§ Compliance with reasonable work rules
§ A reasonablequality and quantity of work
§ Avoidance of conduct that would interfere with employer’s business
o Specific Examples of Behavior that Constitutes “Just Cause”
§ Violation of Drug/Alcohol Policy
§ Poor Performance – Reasonable Quality and Quantity of Work
§ Illegal Activities – in and outside of work that interfere with employer’s ability to carry on the business effectively.
– Definite-Term Contract and Damages: if an employee quits during a definite-term contract, they may be liable for the damages to replace them with someone else; an employee is not liable if they quit for a legitimate medical reason.
– Hetes v. Schefman & Miller Law Office (Court of Appeals of Michigan 1986) – ORAL: P alleging breach of an oral employment contract; P’s claim is based on D’s assurances that she would have a job as long as she “did a good job”; according to P this constituted an oral promise that she not be discharged except for “just cause”.
o In Toussaint v. Blue Cross & Blue Shield of Michigan, the Michigan Supreme Court held that:
§ A provision of an employment K providing that an employee shall not be discharged except for cause is legally enforceable although the K is not for a definite term; and
§ Such a provision may become part of the contract either by express agreement, oral or written, or as a result of an employee’s legitimate expectations grounded in an employer’s policy statements.
o The court finds that a jury could reasonably conclude that the oral representations made by D created an express agreement between the parties to discharge only for good cause.
o In sum – the question of whether P’s K included a termination for “just cause” provision and whether she was terminated in breach of the oral K are for the jury; summary judgment improperly granted.
Notes – ORAL Assurances
– Satisfaction Contracts – an employer’s promise that it will provide employment “as long as I am satisfied with your work”; as long as the employer is satisfied with the employee’s performance, the employee can’t be terminated – implied contract.
o But if an employer fires an employee, isn’t it inherent that the employer is not longer satisfied with their performance?
§ Many courts assume that an employer could never breach such a contract – simply employment at-will;
§ A few courts read-in a good-faith obligation so that the employee might show breach of contract by showing the employer was not “in good faith” dissatisfied with the employee’s job performance –
§ A few courts consider “just cause” –objective standard is used for ““just cause””, but “good faith” in itself requires a subjective standard.