A recent case from the United States Court of Appeals for the Sixth Circuit demonstrates the ongoing struggle to apply the Fair Labor Standards Act (“FLSA”) to the “side gigs” that have come to signify the modern employment market. In Acosta v. Off Duty Police Services, Inc., United States Court of Appeals for the Sixth Circuit, Nos. 17-5995/6071 (February 12, 2019), the Sixth Circuit held that security offers working for Off Duty Police Services (“ODPS”) as a side job were employees entitled to overtime pay under the FLSA.
ODPS workers were either sworn law enforcement officers who worked for law enforcement entities during the day, or unsworn workers with no background in law enforcement. All workers had the same duties, but sworn officers earned a higher hourly rate. Duties included “sitting in a car with the lights flashing or directing traffic around a construction zone.” They were free to accept or reject assignments, but would be punished by withholding future assignments if they did so. When they accepted an assignment, ODPS instructed the workers where to report, when to show up, and who to report to upon arrival. ODPS provided some equipment, but workers did have to use some of their own equipment. Workers followed customer instructions while on assignment, and only occasionally received supervision from ODPS. ODPS paid workers for their hours upon submission of an invoice. Workers did not have specialized skills, as sworn officers and unsworn workers had the same duties.
ODPS treated the workers as “independent contractors.” As the facts set forth in the Sixth Circuit opinion demonstrate, the factors relevant to determining whether a worker is an independent contractor or employee do not provide a clear answer. The United States District Court for the Western District of Kentucky broke the tie this way: the court held that “nonsworn workers” were employees, but that the sworn officers were independent contractors because they “were not economically dependent on ODPS and instead used ODPS to supplement their incomes.”
The Sixth Circuit disagreed, noting that the FLSA is a broadly remedial and humanitarian statute, designed to improve labor conditions. The Sixth Circuit applied the “economic reality” test to determine that the sworn offers were also employees and not independent contractors, and to uphold the finding that unsworn workers were employees. Specifically, the Court noted that the officers provided services that represented an integral part of the business, and that the work required no specialized skills, that the officers made only limited investment in equipment, and that the workers had little opportunity for profit or loss. The Court noted that the facts did not “break cleanly in favor of employee or independent contractor status” regarding the right to control the work for the sworn officers.
Reprinted with permission from the April 18th, 2018 issue of The Legal Intelligencer. (c) 2018 ALM Media Properties. Further duplication without permission is prohibited.
The Supreme Court’s decision in Encino Motorcars, LLC v. Navarro interprets a very specific exemption to the overtime rules imposed by the Fair Labor Standards Act, 29 U.S.C. 201, et seq. (“FLSA”), but the Court’s language and reasoning have game-changing ramifications. The Court’s rejection of the principle that courts should narrowly construe exemptions to the FLSA turns decades of FLSA caselaw on its head.
The facts of Encino Motorcars are deceptively narrow. Employees classified as service advisors for a car dealership challenged the car dealership’s classification of the service advisors as exempt from the FLSA. The FLSA requires that employers must pay overtime to employees who work more than 40 hours in a week. 29 U.S.C. § 207(a). The dealership claimed the exemption under a statutory exemption that applies to car dealerships. 29 U.S.C. § 213. Specifically, the section in question exempts from overtime pay requirements:
Any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.
Under the federal Fair Labor Standards Act (FLSA), employers in “for-profit” enterprises are required to pay compensation to their employees, including a designated minimum wage and overtime pay.
An issue often faced by employers is whether an intern or student is actually an employee entitled to compensation, or whether the intern or student may work without receiving pay.
On January 5, 2018, the United States Department of Labor (“DOL”), which enforces the FLSA, announced in Field Assistance Bulletin No. 2018-2, that it was now going to follow the decision of several appellate courts in promulgating a new test for determining if an intern is actually an employee entitled to compensation.
Specifically, the DOL, announced that it would use the “primary beneficiary test” to determine the status of the would-be intern. The test is intended to be flexible and allows courts or the DOL to review the “economic reality” of the relationship to determine which party, would-be intern or employer, is the primary beneficiary of the relationship.
As part of the “primary beneficiary test”, the DOL adopted seven factors used by the courts:
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The DOL stated that no one factor is determinative of the issue and that the ultimate classification of intern or employee “under the FLSA necessarily depends on the unique circumstances of each case”.
With respect to volunteers for governmental services and non-profits, the Wage and Hour Division of the Department of Labor set forth the following in Fact Sheet No. 71:
“The FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.”
Employers who use interns should carefully review whether they are complying with the law. AMM’s Employment Law attorneys can assist you with this and all compliance issues. To learn more about Michael Klimpl, visit ammlaw.com.
By Patricia Collins, Esquire
On May 2, 2017, the House passed the Working Families Flexibility Act. The purpose of the Act is to give employees flexibility in how they choose to be paid for overtime: in wages or in compensatory time off. The Act crystallizes a tension I see often in my representation of employers.
Presently, the Fair Labor Standards Act (“FLSA”) requires employers to pay nonexempt employees overtime compensation for work hours in excess of 40 in a workweek. Employers cannot compensate employees for those overtime hours in compensatory time off (“comp time”). Such a policy violates the FLSA, exposing the employer to liability for the unpaid overtime hours as well as penalties and attorney’s fees.
The FLSA prohibition against payment in comp time is intended to protect employees from abusive overtime demands by employers. The statutory obligation to pay additional wages for hours over forty in a workweek, so the argument goes, forces the employer to base the decision to require overtime hours on business and financial considerations. The FLSA’s ban on comp time legislates a policy determination that offering comp time will not protect employees from abusive demands by employers.
Republicans this week argued otherwise. They argue that permitting employees to take comp time rather than payment for overtime work gives employees flexibility. Democrats who opposed the bill countered that the Act’s provision allowing employers the final say does not adequately protect employees.
Practically, the Act sits at the tipping point of many competing considerations: employers want to establish policies that comply with the law, protect the business, and benefit employees. Employees want flexibility, but they also need to be paid for their work. The reality is that banked comp time can be a liability for employers because there are jobs for which attendance is extremely important, and unscheduled or unpredictable time is off is sometimes expensive or interferes with the progress of work. Further, employees might not be free to use that comp time in the manner they would like if it interferes with the employer’s business. Most employers offer paid time off in a set amount, in order to create predictability as to an employee’s attendance. While this proposed rule might create flexibility and reduce overtime costs, I do wonder whether it is really a savings in the long run.
It will be interesting to see how the Senate balances these concerns, and whether employers will create policies that allow comp time. The bill now goes to the Senate – no word yet on whether they will vote on it. Stay tuned!