November 10, 2009

A Matter of Time: Independent Contractors Morph into Employees

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.

| 2 Comments

2 Comments

Cromwell and Bankston accepted the work as Independent Contractors. They knew what they were going to get paid. They knew the hours. They made a deal. If they wanted a better deal they could have taken their trucks and gone any where they wanted to to make money. They did not have to report daily to Bell South for Driftwood. They did because it was the best deal they could find at the time. Not because there wasn't other work.

If they thought they were due overtime pay why didn't they complain after the first check.

This is simply a matter of a plaintiff's attorney druming up business after the fact to cheat a company who in good faith made a contract. No different than the Chrysler Bond Holders.

What is this country coming to. Cromwell and Bankston took Driftwoods money for almost a year and then after the job was over sued for more. The fifth circuit should have never heard the case. The district court should have thrown it out for lack of cause.

Where is the breach. Where is the public policy problem. Our Cromwell and Bankston morons that were taken advantage of by a heartless corporation. Or our they thinking independent businessmen who took advantage after the fact of a company who thought they had a valid contract.

There was no morphing into employees. They knew they were independent contractors up front and at the end.

I would like to see how much their attorney got for the case and what excuse cromwell and Bankston used to the court to explain they didn't know any better. They contract as telephone repairmen for a living, that is why they have their own trucks and equipment.

Believe me the hourly rate they were paid took all that into account. So now they are going to get overtime on their equipment and tools and trucks. How sweet it is.

To bad nobody's word is their bond. See Bill Clinton's career for an explanation if you don't understand.

Keep in mind that this is not a determination of whether they are considered an employee under State workers compensation laws. That is something only the State courts could decide. I've read the Statutes on this issue from many states, but never have I seen length of time used as determining factor in whether they are an employee or an independent contractor.

If these guys had filed for WC benefits, they would have lost. FLSA laws are a different animal.

I hope they appealed this to the Supreme Court. I certainly don't understand how your status as employee vs independent contractor could change over time. What is the magic number of days worked before you reach that threshold?

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This page contains a single entry by Jon Coppelman published on November 10, 2009 11:02 AM.

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