The 2024 DOL FLSA Independent Contractor Rules: Similar to the Fourth Circuit’s Existing Standard8/28/2024  Effective July 1, 2024, the Department of Labor’s new independent contractor rules provide guidelines for distinguishing between employees and non-employee independent contractors, for purposes of the overtime and minimum wage requirements of the Fair Labor Standards Act. As explained below, the DOL rules closely parallel the test that the Fourth Circuit has historically applied in FLSA cases.
Statutory and Regulatory BackgroundThe FLSA requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. 29 U.S.C §§ 206-207. The FLSA also imposes recordkeeping requirements on employers. 29 U.S.C. § 211. These requirements raise questions about what it means to be an “employer” or an “employee,” and, more specifically, about the nature of the employment relationship that falls within the scope of the FLSA’s minimum wage and overtime requirements. The FLSA itself defines these terms broadly, but without great clarity. Section 203 of the FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 203(d). The FLSA defines the term “employee” to generally mean “any individual employed by an employer.” 29 U.S.C. § 203(e). And it defines “employ” as “includes to suffer or permit to work.” 29 U.S.C. § 203(g). In FLSA cases, disputes often arise as to whether a worker is an “employee,” entitled to minimum wages and overtime under the FLSA, or a non-employee “independent contractor” to which the FLSA does not apply. Sometimes, workers are misclassified as independent contractors, when under the FLSA they are really employees. The Fourth Circuit’s Employee / Independent Contractor TestThe Fourth Circuit has historically assessed whether a worker is an employee or a non-employee independent contractor using a six-factor “economic realities” test. The factors are: (1) the degree of control that the putative employer has over the manner in which the work is performed; (2) the worker’s opportunities for profit or loss dependent on his managerial skill; (3) the worker’s investment in equipment or material, or his employment of other workers; (4) the degree of skill required for the work; (5) the permanence of the working relationship; and (6) the degree to which the services rendered are an integral part of the putative employer’s business. Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298 (4th Cir. 2006). “These factors are often called the ‘Silk factors.’ No single factor is dispositive; the test is designed to capture the economic realities of the relationship between the worker and the putative employer.” Id. (Derived from United States v. Silk, 331 U.S. 704, 67 S. Ct. 1463 (1947)). The 2024 DOL Employee / Independent Contractor TestThe DOL’s 2024 employee / independent contractor regulations adopt a totality of the circumstances, economic realities test that is consistent with the historical Fourth Circuit test: Of particular note, the regulations set forth in this final rule do not use “core factors” and instead return to a totality-of-the-circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity. Employee or Independent Contractor Classification Under the FLSA, 89 Fed. Reg. 1638 (Jan. 10, 2024) (Amending 29 C.F.R. § 795). The 2024 DOL factors closely parallel the Silk factors discussed above and historically applied by the Fourth Circuit. Shortened, they are: (1) Opportunity for profit or loss depending on managerial skill, (2) Investments by the worker and the potential employer, (3) Degree of permanence of the work relationship, (4) Nature and degree of control, (5) Extent to which the work performed is an integral part of the potential employer’s business, and (6) Skill and initiative. 29 C.F.R. 795.110. “Additional factors may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.” Id. Thus, like the Fourth Circuit, the DOL embraces an economic realities test that balances the relevant factors. And like the Fourth Circuit explained in Schultz, the ultimate inquiry in using the factors is still “whether the [workers] were, as a matter of economic reality, dependent on the business they served, or, conversely, whether they were in business for themselves.” Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298 (4th Cir. 2006). See also Employee or Independent Contractor Classification Under the FLSA, 89 Fed. Reg. 1638 (Jan. 10, 2024) (Amending 29 C.F.R. § 795) (“The ultimate inquiry is whether, as a matter of economic reality, the worker is economically dependent on the employer for work (and is thus an employee) or is in business for themself (and is thus an independent contractor).”) Thus, the DOL’s 2024 FLSA independent contractor test is similar to the economic realities test historically applied in the Fourth Circuit. Both tests consider the same basic factors in their totality. Special thanks to Hannah Wyatt for her work on this post! This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to [email protected].
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 In Muldrow v. City of St. Louis, 144 S. Ct. 967 (2024), the Supreme Court held that an employee challenging a job transfer under Title VII must show that the transfer brought about “some harm” with respect to an identifiable term or condition of employment, but that harm need not be significant. The case is important because it departs from the traditional view that an adverse employment action in discrimination cases generally requires a pecuniary harm. The revised “some harm” standard also calls into question the traditional standard for hostile work environment harassment established in Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 106 S. Ct. 2399 (1986) and Harris v. Forklift Sys., 510 U.S. 17, 114 S. Ct. 367 (1993), which included a “severe or pervasive” treatment element. Meritor Savings Bank and Harris call for a showing of pervasiveness or severity to establish discriminatory harassment. Since harassment is a type of discrimination, however, Muldrow’s recent decision that “some harm” suffices to show a discriminatory action under Title VII may call into question the Harris standard for harassment. .
Statutory BackgroundTitle VII of the Civil Rights Act of 1964 makes it unlawful for an employer “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s . . . sex.” 42 U.S.C. § 2000e–2(a)(1). While a discriminatory adverse employment action is one route to establish Title VII discrimination, the Supreme Court has also interpreted this prohibition to encompass claims based on a discriminatory hostile work environment, rather than solely economic or tangible discrimination. The Harris Court elaborated on the previous Supreme Court ruling in Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 106 S. Ct. 2399 (1986) in describing hostile work environment discrimination: As we made clear in Meritor Savings Bank, this language is not limited to ‘economic’ or ‘tangible’ discrimination. The phrase ‘terms, conditions, or privileges of employment’ evinces a congressional intent ‘to strike at the entire spectrum of disparate treatment of men and women’ in employment, which includes requiring people to work in a discriminatorily hostile or abusive environment. When the workplace is permeated with ‘discriminatory intimidation, ridicule, and insult’ that is ‘sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment,’ Title VII is violated. Harris, 510 U.S. at 21. As discussed below, this “severe or pervasive” standard may be called into question by the Muldrow decision. FactsMuldrow addresses whether the transfer of an employee could qualify as Title VII discrimination when her rank and pay did not change, but her responsibilities did. Slip op. at 2. In short, Muldrow was a sergeant with the St. Louis Police Department who was transferred to a different department against her wishes. Id. She was transferred because her new superior explicitly wanted to replace her with a man, which he thought to be a better fit for the division’s “very dangerous” work. Id. The transfer was approved, and while her rank and pay remained the same, her “responsibilities, perks, and schedule did not.” Id. The question for the Supreme Court in Muldrow was thus what level of harm must a plaintiff show to successfully challenge a job transfer as discriminatory under Title VII. The Court’s DecisionThe Muldrow Court reversed the decision of the lower court, finding that there is no heightened threshold of harm requirement imposed by Title VII, and that there need only be some “disadvantageous” change in an employment term or condition. Slip op. at 5. The Court explained that the language of Title VII, i.e. “discriminate against,” refers to “differences in treatment that injure” employees. Id. The Court further explained, “To make out a Title VII discrimination claim, a transferee must show some harm respecting an identifiable term or condition of employment.” Id., at 6. A plaintiff does not have to show “…that the harm incurred was significant … Or serious, or substantial, or any similar adjective suggestive that the disadvantage to the employee must exceed a heightened bar.” Id., at 6. The Court also explained that while “discriminate against” means to treat worse, imposing a threshold for the level of harm needed to show discrimination would be inconsistent with the text of the statute: There is nothing in the provision to distinguish, as the courts below did, between transfers causing significant disadvantages and transfers causing not-so-significant ones. And there is nothing to otherwise establish an elevated threshold of harm. To demand “significance” is to add words—and significant words, as it were—to the statute Congress enacted. It is to impose a new requirement on a Title VII claimant, so that the law as applied demands something more of her than the law as written. Slip op. at 6. Accordingly, the Court held that the lower courts erred in reading a heightened standard of harm into their analysis, and that if Muldrow’s allegations are proven, then she was in fact left worse off several times over. Id. at 10-11. The Court therefore remanded the case for further proceedings under the “proper Title VII standard,” which does not demand that the plaintiff demonstrate her transfer caused “significant” harm. Id. AnalysisIn sum, Muldrow held that an employee challenging a job transfer under Title VII must show that the transfer brought about “some harm” with respect to an identifiable term or condition of employment, but that harm need not be significant. This case marked a departure from the traditional view that an adverse employment action under Title VII required a pecuniary harm. It also calls into question the traditional “pervasiveness or severity” standard in discriminatory hostile work environment cases. Muldrow held that a plaintiff must show “some harm,” but is not required to show a heightened level of harm to make out a discrimination claim, as Title VII is intended to address any harmful discriminatory treatment, not just treatment that causes significant harm. Thus, a plaintiff need not necessarily suffer an economic loss to make out an adverse employment action. This revised standard may also suggest that a workplace permeated with discriminatory intimidation, ridicule, and insult that alters the conditions of the plaintiff’s employment and creates an abusive working environment could be enough to establish a hostile work environment under Title VII, so long as the plaintiff can show some harm. Special thanks to Hannah Wyatt for her work on this post! This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to [email protected]. The Fair Labor Standards Act requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. However, the law contains several exceptions or “exemptions” from these requirements. This post will focus on the exemption for employees of seasonal amusement or recreational establishments under 29 U.S.C. § 213(a)(3). The Department of Labor Fact Sheet #18 is an excellent resource for information about this exemption. Some DOL implementing regulations relevant to the seasonal amusement or recreational establishment exemption are generally located at 29 C.F.R. §§ 779.385, 779.23, 779.203, and 779.302-311.
Two Alternative Tests for the ExemptionThe FLSA provides an exemption from the law’s minimum wage and overtime requirements (found at 29 U.S.C. §§ 206 and 207, respectively) for employees “employed by an establishment which is an amusement or recreational establishment, organized camp, or religious or non-profit educational conference center”, if either of the following two tests are met.
[E]xcept that the exemption from sections 206 and 207 of this title [minimum wage and overtime requirements] provided by this paragraph does not apply with respect to any employee of a private entity engaged in providing services or facilities (other than, in the case of the exemption from section 206 of this title, a private entity engaged in providing services and facilities directly related to skiing) in a national park or a national forest, or on land in the National Wildlife Refuge System, under a contract with the Secretary of the Interior or the Secretary of Agriculture… 29 U.S.C. § 213(a)(3). Establishment Compared to EnterpriseBecause this exemption only applies to employees of certain “establishments”, FLSA regulations on the distinctions between an “establishment” and an entire business or “enterprise” can be relevant. In short, the regulations clarify that an “establishment” refers to a distinct physical place of business: As used in the [FLSA], the term establishment…refers to a “distinct physical place of business” rather than to “an entire business or enterprise” which may include several separate places of business. This is consistent with the meaning of the term as it is normally used in business and in government, is judicially settled, and has been recognized in the Congress in the course of enactment of amendatory legislation[.] 29 C.F.R. § 779.23 (emphasis in original; citations omitted). FLSA regulations further provide that the “[a]musement or recreational establishments” referenced in the exemption are “establishments frequented by the public for its amusement or recreation and which are open for 7 months or less a year or which meet the seasonal receipts test provided in clause (B) of the exemption.” 29 CFR § 779.385. Typical examples of such establishments are “the concessionaires at amusement parks and beaches.” Id. Application to Multiunit Operations This distinction between an establishment and an enterprise, in the context of a business operating at multiple locations, is further detailed in 29 C.F.R. §§ 779.303: As previously stated in § 779.23, the term establishment as used in the [FLSA] means a distinct physical place of business. The “enterprise,” … may be composed of a single establishment. The term “establishment,” however, is not synonymous with the words “business” or “enterprise” when those terms are used to describe multiunit operations. In such a multiunit operation some of the establishments may qualify for exemption, others may not. For example, a manufacturer may operate a plant for production of its goods, a separate warehouse for storage and distribution, and several stores from which its products are sold. Each such physically separate place of business is a separate establishment. In the case of chain store systems, branch stores, groups of independent stores organized to carry on business in a manner similar to chain store systems, and retail outlets operated by manufacturing or distributing concerns, each separate place of business ordinarily is a separate establishment. 29 C.F.R. § 779.303 (emphasis added). In other words, a business or enterprise can have multiple establishments, and this exemption may apply to employees at some, but not all, of those establishments. For additional regulations addressing the meaning of “establishment”, see 29 C.F.R. §§ 779.302-311 and 779.203; see also 29 U.S.C. §§ 203(r) and (s) for “enterprise” definitions and tests. This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to [email protected]. Bartels v. Birmingham: Early Economic Reality Test For Employment Relationship in Music Industry6/28/2024 In Bartels v. Birmingham, 332 U.S. 126, 67 S. Ct. 1547 (1947), the Supreme Court held that members of musical bands were employees of the bands’ leaders, rather than of the operators of the dance halls where the bands played, within the meaning of the Social Security Act. The Court emphasized that, inter alia, the band leader organized and trained the band, that the leader’s musical skill determined the success or failure of the band, and the relationship between the leader and the band members was permanent. The case is important because, inter alia, it applied an “economic reality” test, using the reasoning in United States v. Silk, 331 U.S. 704 (1947), for determining the existence of an employment relationship. This test for determining whether a worker is an employee or an independent contractor, and which entities are employers, came to be applied in cases under the Fair Labor Standards Act. See Schultz v. Cap. Int’l Sec., Inc., 466 F.3d 298, 304–05 (4th Cir. 2006).
Statutory and Regulatory BackgroundThe FLSA requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. 29 U.S.C §§ 206-207. The FLSA also imposes recordkeeping requirements on employers. 29 U.S.C. § 211. These requirements raise questions about what it means to be an “employer” or an “employee,” and, more specifically, about the nature of the employment relationship that falls within the scope of the FLSA’s minimum wage and overtime requirements. The FLSA itself defines these terms broadly, but without great clarity. Section 203 of the FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 203(d). The FLSA defines the term “employee” to generally mean “any individual employed by an employer.” 29 U.S.C. § 203(e). And it defines “employ” as “includes to suffer or permit to work.” 29 U.S.C. § 203(g). While Bartels and Silk involved cases brought under a different law, the Social Security Act, the “economic realities” test they articulated for determining whether a worker is an employee or an independent contractor came to be applied in FLSA cases. See Schultz v. Cap. Int’l Sec., Inc., 466 F.3d 298, 304–05 (4th Cir. 2006). FactsBartels examined relationships between the operators of dance halls, the leaders of bands that played in these dance halls for “limited engagements”, and the musicians in those bands. In a nutshell, the band leaders contracted with various ballroom operators to play at their establishments for a contract price. 332 U.S. 126, 127. Most of the engagements at issue were one-night performances, although some were for performances over several successive nights. 332 U.S. at 127–28. As a practical matter, the Court observed that the “leader exercise[d] complete control over the orchestra.” 332 U.S. at 128. The leader set the musicians’ salaries, paid them, and told them what and how to play. Id. He provided the sheet music and arrangements, the public address system, and the musicians’ uniforms. Id. He hired and fired the musicians. The band leader paid for expenses, including agents’ commissions, transportation and other expenses out of the payments received from the dance hall operators. Id. Any extra money left over after the expenditures was “his profit and any deficit his personal loss.” Id. The operators of the dance halls provided the piano but not the other instruments. Id. The relationship between the parties was complicated, however, by the contracts between the dance hall operators and the union that band leaders and musicians belonged to. 332 U.S. at 128. The Court observed that the form contract stated “that the ballroom operator is the employer of the musicians and their leader, and ‘shall have complete control of the services which the employees will render under the specifications of this contract.’” Id. The Circuit Court of Appeals had placed great weight on the terms of the contract. It applied the “common law test of control, i.e., that one was an employer if he had the ‘right’ to direct workers in what should be done and how it should be done.” Id. at 129. It concluded that the contract between the parties gave the ballroom operators the “‘right’ to control the musicians and the leader, whether or not the control was actually exercised.” Id. The Circuit Court of Appeals determined that while the contract was not binding on the government, it was binding on the parties, and therefore the leader and musicians were employees of the dance hall operators under the SSA if taxing authorities accepted the arrangement as valid. Id. The question for the Supreme Court in Bartels was whether the facts showed that the musicians were “employees” of the band leader, or of the ballroom operators, within the meaning of the Social Security Act. The Court’s DecisionThe Bartels Court reversed. It held that the musicians were “employees” of the band leader within the meaning of the SSA. The Court observed that under Silk, the employment relationship was to be determined a multi-factor test that examined the “economic reality” of the situation: In United States v. Silk … we held that the relationship of employer-employee, which determines the liability for employment taxes under the Social Security Act was not to be determined solely by the idea of control which an alleged employer may or could exercise over the details of the service rendered to his business by the worker or workers. Obviously control is characteristically associated with the employer-employee relationship but in the application of social legislation employees are those who as a matter of economic reality are dependent upon the business to which they render service. In Silk, we pointed out that permanency of the relation, the skill required, the investment if the facilities for work and opportunities for profit or loss from the activities were also factors that should enter into judicial determination as to the coverage of the Social Security Act. It is the total s[it]uation that controls.… 332 U.S. at 130. Applying these “economic reality” factors to the facts in Bartels, the Court concluded that the musicians were employees of the band leader, not the dance hall operator: We are of the opinion that the elements of employment mark the band leader as the employer in these cases. The leader organizes and trains the band. He selects the members. It is his musical skill and showmanship that determines the success or failure of the organization. The relations between him and the other members are permanent; those between the band and the operator are transient. Maintenance costs are a charge against the price received for the performance. He bears the loss or gains the profit after payment of the members’ wages and the other band expenses. 332 U.S. at 132. Thus, the Court reasoned that the totality of the circumstances indicated an employer-employee relationship between the band leader and the musicians. The Court accordingly held that under this analysis — applying the economic reality test described in Silk — the musicians were “employees” of the band leader within the meaning of the SSA. AnalysisIn sum, Bartels held that members of a musical band were employees of the band’s leader, rather than of the operators of the ballrooms where the band played, within the meaning of the Social Security Act. The case is important because, inter alia, it applied an “economic realities” test, using the reasoning in Silk, 331 U.S. 704 (1947), for determining the existence of an employment relationship. This test for determining whether a worker is an employee or an independent contractor, and which entities are employers, came to be applied in cases under the Fair Labor Standards Act. See Schultz, 466 F.3d 298, 304–05 (4th Cir. 2006). This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to [email protected]. |
