On Monday, we discussed the Troyer v. T.John.E Productions, Inc. case. The outcome of that case hinged on whether the plaintiff workers were “employees” or “independent contractors.” The IRS had previously issued SS-8 determination letters to the employers, wherein it was determined the plaintiffs were, in fact, “employees” under the 20-factor IRS guidelines. One might think that the IRS classification would result in a judgment for the plaintiffs. The court, however, thought otherwise.

Because the plaintiffs’ claims were brought under the Fair Labor Standards Act, the IRS determination letters were not dispositive of the issue. In fact, the FLSA has its own test, commonly referred to as the Economic Realities Test, which determines workers’ classification. The FLSA test considers the following factors:

1. The permanency of the relationship between the parties;
2. The degree of skill required for the rendering of the services;
3. The extent of the worker’s investment in equipment or materials for the task;
4. The worker’s opportunity for profit or loss, depending upon his skill;
5. The degree of the alleged employer’s right to control the manner in which work is performed; and
6. Whether the service rendered is an integral part of the alleged employer’s business.

At trial, the plaintiffs testified their working relationship with defendants was of a permanent nature, they had worked hundreds of hours of uncompensated time, and the defendants exercised strict control of their daily schedules while on the road.

Defendants counter-argued the plaintiffs worked on a job-by-job basis, the plaintiffs had great autonomy in how the work was completed, and there was no credible evidence supporting plaintiffs’ alleged overtime work. Additionally, defendants pointed out that even if the IRS classification applied for FLSA purposes, the Internal Revenue Code includes a safe harbor provision, which allows an employer to show that classification of certain workers as independent contractors is consistent with “industry standards.” To support their safe harbor defense, defendants presented evidence that the entertainment industry routinely hires similarly situated workers as independent contractors.

The jury returned a verdict in favor of the employers, finding that the plaintiffs were properly classified as independent contractors for purposes of the FLSA. Plaintiffs subsequently filed a motion for a new trial arguing that the verdict was unsupported by the evidence. The district court denied the motion. On appeal, the U.S. Court of Appeals for the 6th Circuit (which encompasses Kentucky, Michigan, Ohio, and Tennessee) affirmed the district court’s decision.

The Troyer decision illustrates that the distinction between independent contractor and employee is never clear-cut. Even if an agency provides workers with a certain status, another agency may reach a different  conclusion. An employer should always be aware that their workers’ classifications arise from the relationship to the employer as opposed to the titles employers give them.

Special thanks to Amanda Stubblefield and Matthew Finley, Law Clerks for McBrayer, for contributions to this blog post.