We turn yet again to the ever-troubling issue of independent contractors. In today's case we examine a situation where two individuals, beginning as legitimate independent contractors, morph over time into employees. It's a cautionary tale that demonstrates what is true today may no longer be true tomorrow.
Fred Cromwell and Jeff Bankston became involved in the restoration of damaged telecommunication lines along the Mississippi Gulf Coast in the wake of Hurricane Katrina. They were hired as independent contractors by Driftwood Electrical, a subcontractor of BellSouth. Cromwell and Bankston provided their own trucks, testing equipment, connection equipment, insulation equipment and hand tools - a total personal investment of $66,000. BellSouth supplied materials, including cables.
Each day Cromwell and Bankston reported to BellSouth's location to receive their assignments. They worked 12 hours a day for thirteen days and then had one day off. (Tough working conditions, indeed.) They were paid a fixed hourly wage for their work and labored under these exhausting conditions for about 11 months.
At issue is the rate of pay: Driftwood paid them a set hourly rate. (They also, we note with interest, provided workers comp coverage.) Cromwell and Bankston sued for overtime pay under the Fair Labor Standards Act (FLSA). A district court granted summary judgment against Cromwell and Bankston on the grounds that they were independent contractors, not employees, and thus exempt from the overtime provisions of the FLSA. The U. S. Fifth Circuit Court took up the appeal.
The court found that Cromwell and Bankston were to a significant degree independent contractors:
- They controlled the work, with no direct supervision from Driftwood
- They provided their own tools
- They could theoretically work for others (although they did not)
The court also found, however, that in comparing this case to others, there were significant differences:
The plaintiffs in this case worked full-time exclusively for the defendants for approximately eleven months...The plaintifs did not have [a] temporary, project-by-project, on-again-off-again relationship with their purported employers.
While the court found "facts pointing in both directions" regarding the issue of employment status, they determined that on balance, and as a matter of economic reality, Cromwell and Bankston were economically dependent upon Driftwood and were not in business for themselves. "The permanency and extent of the relationship [with Driftwood], coupled with Driftwood's...complete control over...schedule and pay, had the effect of severely limiting any opportunity for profit or loss by Cromwell and Bankston."
Thus, even though Cromwell and Bankston controlled the details of the work, were not closely supervised, invested in equipment and tools and used a high level of skill in performing the work, they were not "in business for themselves" during the eleven stressful months of Katrina clean up. The judgment of the district court was vacated and the case was remanded back to that court for reconsideration.
The Lessons of Time
The lessons here are clear: even when virtually all the criteria for independence are met, independent contractors may still be considered employees, especially where they work for a substantial block of time for only one employer. The case serves as a warning to contractors going forward: if your "independent contractors" only work for you over a substantial period of time, they are likely to morph into employees, with all the rights and considerations attached to that fundamental and eternally-perplexing relationship.
NOTE: A special thanks to Michael Maslanka, a Texas attorney blogging at WorkMatters, for highlighting this case. His blog, just celebrating its one year anniversary, is an excellent resource.