On September 19, 2011, the U.S. Department of Labor (DOL) signed a memorandum of understanding with the Internal Revenue Service.  The memorandum’s goal was to end businesses misclassifying employees as independent contractors.  Misclassification of installers allows the company to avoid providing employment protections and employment-related benefits.

A few days after the memorandum was signed, a U.S. District Court in Ohio issued a decision in a legal claim filed by the DOL (Solis v. Cascom, Inc.) that shows the risks businesses face when they misclassify workers as independent contractors.

What happened in Cascom?

Cascom, Inc. contracted with Time-Warner Cable to install cable for internet and television in homes in Southwestern Ohio.

To fulfill its contract with Time Warner, Cascom hired cable installers to do the installation.

Before commencing with Cascom, each cable installer was required to complete an “employment application” and Cascom then hired each installer for an indefinite period of time.

However, the cable installers were not allowed to hire their own employees without Cascom approval.

The installers were paid for each installation performed, and no by the hour – the cable installation service did not require the skill of an electrician.  In fact, several workers had no experience even remotely related to cable installation prior to beginning with Cascom.

The installers were free to work additional hours to increase their income and were assigned work by Cascom on a day-to-day basis.

Once in the field, installers 1) checked in with the dispatcher after each job; 2) remained on the job until dismissed by Cascom; and 3) completed paper work created by Cascom, including work orders.

In addition, the installers followed Cascom’s directions for installation methods and work practices.

Workers sometimes attended morning meetings led by Cascom supervisors.

Cascom also dictated all of the driving routes, which installers were required to accept or reject in their entirety and couldn’t suggest their own.

Workers had to wear shirts with the Cascom logo and to display Cascom’s logo on their vehicles.

Workers had to request leave, in writing, if they wanted to take a day off.

In the lawsuit, the Department of Labor (DOL) argued that the work arrangement between Cascom and the cable installers amounted to an employer-employee relationship for purposes of the Fair Labor Standards Act (FLSA). The DOL argued that Cascom (and its president) violated the FLSA by misclassifying Cascom employees as independent contractors and, consequently, not compensating them for overtime work as required by the FLSA.

As a result, the DOL sought to recover back wages for approximately 250 installers in excess of $800,000 and sought an equal amount in liquidated damages under the FLSA.

Analysis of employment relationship under the FLSA

After a two-day trial, the court found that Cascom’s installers were “employees” subject to the overtime and record keeping requirements of the FLSA.

In its opinion, the court emphasized that the FLSA defines “employee” in “exceedingly broad” terms.

Although the defendants argued that the cable installers were independent contractors with whom they contracted to have work performed rather than FLSA employees, the court stated that simply putting on an “independent contractor” label does not remove the worker from the protection of the FLSA.

Accordingly, the court recited several factors, often known as the “economic reality” test, which can be used to distinguish an employment relationship from a relationship with an independent contractor:

  1. the degree of the alleged employer’s right to control the manner in which the work is to be performed;
  2. the alleged employee’s opportunity for profit or loss depending upon his managerial skill;
  3. the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
  4. whether the service rendered requires a special skill;
  5. the degree of permanence of the working relationship; and
  6. whether the service rendered is an integral part of the alleged employer’s business.

Since it has long been established that the answer to one of these factors alone is not enough to establish whether an employment relationship exists, the court stressed that the entire relationship should be considered to make the determination.

After applying the facts to the factors, the court determined that Cascom’s installers were employees under the FLSA, and thus Cascom should have paid them overtime and complied with the record keeping requirements of the FLSA.

What does this mean for cable installers and misclassified employees?

In the wake of Cascom, Secretary of Labor Hilda L. Solis explained that “[t]he misclassification of employees as independent contractors is an alarming trend.” The practice is a serious threat to both workers, who are entitled to good and safe jobs, and to employers who obey the law and are undercut when others use illegal practices

Employers should ensure that workers are properly classified to avoid the significant exposure that results from violations of the FLSA.

If you suspect that you have been misclassified, and improperly owed overtime wages, contact a qualified employment attorney to ensure your rights are protected.