Classification of Workers: Employee or Independent Contractor–The More Things Change the More They Stay the Same

The issue of whether a worker is classified as an independent contractor or an employee can have a variety of legal ramifications. Employees are protected under the Fair Labor Standards Act (“FLSA”), which requires payment of minimum wage, sets overtime rules, and provides other protections to employees. The FLSA does not extend such protections to independent contractors.

Title VII and other federal anti-discrimination laws also protect employees, but they too do not apply to independent contractors. Similarly, while employees have rights under the National Labor Relations Act, independent contractors do not.

Under Georgia law, an “independent contractor’s employer is under no duty to take affirmative steps to guard or protect the contractor’s employees against the consequences of the contractor’s negligence or to provide for their safety.” Murphy v. Blue Bird Body Co., 207 Ga.App. 853, 429 S.E.2d 530, 533 (1993); see also Ga. Code Ann. § 51-2-4. Instead, the employer “owes the contractor’s employees … the ubiquitous duty of not imperiling their lives by its own affirmative acts of negligence.” Id.

While the legal context in which the question of worker classification arises will affect the governing law and the applicable standards, those standards can be quite similar.  It is beyond the scope of this writing to explore the standards in all legal contexts.  This writing is focused on classifications applicable in the FLSA context, although it is worth noting that the National Labor Relations Board (“NLRB”) has recently adopted standards that tend to expand the class of workers classified as employees versus independent contractors. See Atlanta Opera Inc., 372 NLRB No. 95 (2023).

The issue of the proper test for classification of workers recently has come to the forefront because in January 2021 the Department of Labor (“DOL”) published a rule entitled “Independent Contractor Status Under the Fair Labor Standards Act” (the “2021 Rule”), providing classification guidance under the FLSA. Prior to the 2021 Rule, the DOL and courts had since the 1940s applied an economic reality test identifying five non-exhaustive factors to be considered in determining the proper classification of a worker. Under that approach, no one factor was dispositive.

The 2021 Rule, however, was a stark departure from the historical application of the economic realities test. Under the 2021 Rule, the DOL identified two factors—the nature and degree of control over the work and the worker’s opportunity for profit or loss—as “core factors” that were the most probative and carried greater weight in classification analysis. Although the 2021 Rule identified three other factors to be considered in the analysis (the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production), the 2021 Rule made plain that it was “highly unlikely” that those non-core factors could overcome the combined probative value of the two core factors. The 2021 Rule also limited the extent to which investment and initiative are considered in the analysis. Control and whether the work performed were integral to the employer’s business were also assigned less weight in the analysis.

After the Trump Administration DOL published the 2021 Rule, the DOL under the Biden administration backtracked some months later and announced its intention to rescind the 2021 Rule.  In so doing, the DOL was obliged to issue a Notice of Rulemaking announcing its intention to hew to case law describing and applying the multifactor economic reality test as a totality-of-the-circumstances test.  In connection with making the rule change, the DOL announced it “now believes it is appropriate to rescind the 2021 [] Rule and replace it with an analysis for determining employee or independent contractor status under the Act that is more consistent with existing judicial precedent and the Department’s longstanding guidance prior to the 2021 [] Rule.”

Here is what that means in the 11^th Circuit, the federal circuit that has responsibility for federal cases originating in, among other states, Alabama, Georgia, and Florida: To properly classify workers under the FLSA, “courts look to the ‘economic reality’ of the relationship between the alleged employee and alleged employer and whether that relationship demonstrated dependence.” Usery v. Pilgrim Equip. Co., 527 F.2d 1308, 1311 (5th Cir. 1976). The inquiry is not governed by the label the the parties put on the relationship or the contract that controls the relationship, “but rather focuses on whether ‘the work done, in its essence, follows the usual path of an employee.’” Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311 (2013).

“Ultimately, in considering economic dependence, the court focuses on whether an individual is in business for himself or is independent upon finding employment in the business of others.” Usery, 527 F.2d at 1312 (internal quotation marks omitted). Because “a constricted interpretation of the [the FLSA] by courts would not comport with [the FLSA’s] purpose,” the Eleventh Circuit holds that “[t]he common law concepts of ‘employee’ and ‘independent contractor [are] specifically rejected as determinants of who is protected” by the FLSA. Id. at 1311.

The Eleventh Circuit uses six non-exhaustive factors to guide the economic reality inquiry:

(1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed;
(2) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers;
(3) whether the service rendered requires a special skill;
(4) the degree of permanency and duration of the work relationship;
(5) the extent to which the service rendered is an integral part of the alleged employer’s business;
(6) the extent to which the service rendered is an integral part of the alleged employers’ business.

Scantland, 721 F.3d at 1312.

In Scantland, the Eleventh Circuit reversed the district court’s finding that a cable service provider’s installation and repair technicians were independent contractors rather than employees. The appellate court determined that the district court applied the six-factor economic reality test in too rigid a fashion, failing to consider the factors through the overarching “lens of ‘economic dependence’ and whether they are more analogous to the ‘usual path’ of an employee or an independent contractor.” Id. at 1312. Thus, the Eleventh Circuit—consistent with the DOL’s longstanding and recently renewed application of the economic reality test—held that the “six factors are not exclusive and no single factor is dominant.” Id. at 1312.

Further, district courts within the Eleventh Circuit, including those in Georgia, have followed suit in applying the economic reality test reaffirmed by the DOL’s recent rescinding of the 2021 Rule. In Hurst v. Youngelson, 354 F. Supp. 3d 1362 (N.D. Ga. 2019), the Northern District of Georgia applied the Scantland six-factor test and determined that an exotic dancer was an employee of an adult entertainment club, rather than an independent contractor, and the employer had, thus, violated the plaintiff’s FLSA rights by misclassifying her and failing to pay her minimum wages. Id. at 1378. The court held that despite the dancer not being required to work certain hours or dance for customers while at the club, all six factors weighed in favor of an employee-employer relationship since the club maintained significant control over the plaintiff and her ability to make money, i.e., the plaintiff depended economically on the club. Id.

In Diego v. Victory Lab, Inc., 282 F. Supp. 3d 1275 (S.D. Fla. 2017), the Southern District of Florida applied the Scantland test and determined that a political canvasser, who worked for a campaign services provider by surveying voters and handing out information regarding elections, was an independent contractor, rather than an employee, under the FLSA because the provider exerted only minimal control over the manner that the canvasser performed his work, the canvasser was hired for four-month job, and during those four months, he was never required to report to work. Id. at 1284.

Such rulings are but examples of the consistency with which courts in the Eleventh Circuit apply the economic realities test reaffirmed in the final DOL rule, which goes into effect on March 11, 2024. Lastly, though the laws of states within the Eleventh Circuit generally do not provide greater protections than FLSA, employers that maintain a presence in states with more stringent requirements than the FLSA (e.g., California) should be mindful that such states may provide a more stringent test to differentiate an employee from an independent contractor.