Issues related to whether individuals are independent contractors or employees receive significant attention by employers and governmental entities because of the critical impact of misclassification. The U.S. Department of Labor’s (DOL) recently published proposed rule restricting when individuals can be considered independent contractors is an example of this scrutiny. Further, this attention is also reflected by more states viewing misclassification as criminal conduct—by classifying such conduct as wage theft, rather than as a civil matter. A recent decision by a Texas federal court following a bench trial involving misclassification issues helps provide guidance for employers seeking to make appropriate independent contractor classifications.

In Mason v. Helping Our Seniors, LLC, the key issue evaluated by the court concerned whether the defendant, Helping Our Seniors, LLC, was an “employer” under Title VII of the Civil Rights Act of 1964. The company utilized approximately seventy individuals to provide in-home companionship, cleaning, and nonmedical care services to its clients. The company claimed that it did not meet the definition of “employer” under Title VII because it had fewer than fifteen employees and all the in-home caregivers were independent contractors. The plaintiffs, Melanie and Dolores Mason, argued that the in-home caregivers were employees to be counted to determine Title VII coverage.

After a bench trial, the court observed that the Fifth Circuit Court of Appeals applies a hybrid “economic realities/common law control test” to determine whether individuals are employees or independent contractors. In general, “[t]his test considers ‘the economic realities of the work relationship, and the extent to which the one for whom the work is being done has the right to control the details and means by which the work is to be performed, with emphasis on this latter control factor,’” the court stated. The court also noted that the Fifth Circuit focuses on “‘whether the alleged employer has the right to hire and fire the employee, the right to supervise the employee, and the right to set the employee’s work schedule.’” The court indicated it also analyzes factors such as the skill required to perform the task involved; who furnishes the equipment used; the place of work; “the method of payment, whether by time or by the job”; “whether the work is an integral part of the business of the ‘employer’”; and “the intention of the parties.”

In concluding that the economic realities/control test weighed in favor of finding the in-home caregivers employees and rejecting the independent contractor classification, the court focused on evidence reflecting the following:

• The individuals could not perform their duties without oversight.

• The individuals underwent substantial training on company policies, including such things as dress code, scheduling, and how to treat clients.

• The individuals had to complete a company-mandated orientation checklist.

• Individuals could be reprimanded or discharged for failing to adhere to company policies.

• The company imposed restrictions on the ability to subcontract assignments.

• The individuals involved were low-skilled workers with little or no specialized educational training for performing the job.

• Individuals were paid on an hourly basis, with expenses reimbursed for mileage and parking fees, and they were not required to “provide any of their own supplies for their work [or] … maintain liability insurance for the care they provided.”

• There was no evidence that individuals “invested in the business or had any opportunity for profit or loss as is typical of an independent-contractor relationship.”

• The label “independent contractor agreement” was not, by itself, dispositive of the question of employment status.

The court’s evaluation of the evidence provides useful guidance for employers when assessing current independent contractor relationships or retaining individuals as independent contractors. Many of the matters cited by the court could have also been considered evidence of an independent contractor relationship had the relationship been structured differently. Some factors that courts may examine when evaluating an independent contractor classification under the hybrid economic realities/control test include whether

• the contractor is an established business with a corporate identity, rather than just an individual, and whether the contractor is paid pursuant to a task or on an hourly basis;

• the ability to subcontract has been restricted;

• the company exercises substantial control over the details and means by which the work is performed;

• performance is evaluated based solely on the completion of the task, not on the details of the work; and

• expense reimbursement or benefits are provided.

While the court noted that the existence of an independent contractor agreement is not, by itself, dispositive of the issue, a well-drafted agreement may help to set out many of the elements in such a contract that would tip the scales of the evaluation to individuals’ being deemed independent contractors.