Notwithstanding Trump’s Efforts to Narrow Joint Employment Liability, Businesses Need to Remain Vigilant When Using “Independent Contractors”

08 October 2018 Labor & Employment Law Perspectives Blog
Author(s): Leonard V. Feigel

As we have focused on in this week’s articles, it is no secret that the current administration is pushing much more pro-business policies compared to the Obama administration. For example, as we previously wrote about, federal agencies under Trump’s administration have taken steps and issued guidance aimed at narrowing the circumstances under which a business could be held liable for violations committed by staffing agencies, contractors and franchisees under the federal Fair Labor Standards Act (FLSA) and National Labor Relations Act (NLRA). Such policies and actions by the current administration are surely welcome news to employers, but employers would be wise not to become complacent on the joint employment issue. Indeed, a recent federal court decision in Michigan, Benion et al v. LeCom, Incorporated et al  serves as a stark reminder that businesses should still diligently assess whether a subcontractor’s employees qualify as “independent contractors.”

In the Benion case, a group of cable television technicians sued a cable installation and service company (Company) for which they performed services. The technicians claimed they were misclassified as independent contractors and that they worked 60-70 hours/week, and thus were owed unpaid overtime under the federal Fair Labor Standards Act. The Company asserted the technicians were not its employees, but instead were either sole practitioner independent contractors or employees of another company with which the Company subcontracted. In support of its defense, the Company pointed out that all technicians, regardless of whether they were independent contractors performing services directly for the Company or employees of a subcontractor, were required to sign independent contractor agreements and all compensation was reported on 1099 tax forms.

Nevertheless, the court ruled that the Company was the technicians’ employer, and therefore the Company could be liable for potentially substantial unpaid overtime wages to the group of technicians. The court determined that regardless of whether they worked directly for the Company or for the Company through a subcontractor, the technicians were not independent contractors because they were  “economically dependent” on the Company and not in business for themselves.

In reaching this conclusion, the court pointed out that: 1) the Company controlled the schedules and assignments of the technicians; 2) the technicians were not allowed to refuse assignments; 3) the Company determined the technicians’ pay and the technicians could not negotiate different pay; 4) the technicians needed to obtain clearance from a Company supervisor before they could quit for the day; and 5) the technicians were required to work five to six days a week for the Company, so it was not practical for the technicians to pursue outside work. In sum, the court held that the Company controlled the working conditions of the technicians.

The takeaway for employers is that the issues surrounding joint employment type liability are far from dead even though the current Administration has taken a much more favorable stance on the issues compared to the prior Administration. Accordingly, employers should continue diligently assessing their potential liability under joint employment theories, including misclassification of independent contractors. Moreover, consultation with either in-house or outside employment counsel is often prudent, due to the complexity and nuanced differences between the tests for joint employment type liability under the various employment statutes.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.


Related Services