Is Your Independent Contractor Truly Independent?

A Denver federal court rejected a company’s argument that it was entitled to summary judgment on wage claims because the plaintiff was an independent contractor.[1] Although plaintiff’s title was Director and Business Analyst for the defendant company (“Company”) and he at times described himself as a “1099 employee,” he signed an “employment agreement” with the Company, but the Company did not pay plaintiff directly. Instead the company made payments to the plaintiff’s limited liability company. After the work relationship ended, plaintiff claimed that the Company failed to pay his earned, vested wages at the time of his termination, in violation of the Colorado Wage Act (the “CWA”), and failed to pay minimum wage, in violation of the Fair Labor Standards Act (“FLSA”).

The Company moved for summary judgment arguing that plaintiff was an independent contractor—not an employee—and had no claims under the CWA or FLSA. The judge rejected the Company’s motion and critiqued the company’s arguments under the “economic realities test.”[2] That test focuses on the parties’ relationship, in particular “whether the individual is economically dependent on the business to which he renders service…or is, as a matter of economic fact, in business for himself.”[3]

Although the parties’ actual relationship (not how the parties define the relationship) is key, the court in Powers emphasized that the employment agreement at issue consistently referred to the plaintiff as an “employee,” and never referred to him as an “independent contractor.” The court further reasoned that:

·                     the employment agreement referred to the plaintiff as an “at-will employee,” and did no place a time limit on his employment;

·                     the Company “exhibited a significant amount of control over [the plaintiff’s] employment,” and in fact “possessed sole discretion to assign additional responsibilities;”

·                     the employment agreement contained a non-compete and non-solicitation agreement;

·                     the plaintiff was eligible to participate in the Company’s 401k program; and

·                     the plaintiff did not perform work for any other companies, and was dependent on his employment with the Company for his livelihood.

Practical Takeaways

            Government agencies remain focused on challenging misclassification of employees as independent contractors. The employment agreement in Powers directs companies to treat independent contractors as independent in name and in practice.

Red flags for companies to consider in misclassification situations, include: (1) giving independent contractors titles like “director”; (2) referring to independent contractors as “employees” or “1099 employees”; (3) providing employee benefits (such as access to 401k plans) to independent contractors; (4) exerting control over an independent contractor’s performance of work; and (5) contracting with an independent contractor for an indefinite period of time. Companies with questions about their classification of workers are encouraged to speak with one of Campbell Litigation’s attorneys.

[1] [1] Powers v. EmCon Associates, Inc., No. 14-cv-03006-KMT, 2017 WL 4075766 (D. Colo. Sept. 14, 2017).

[2] The six factors considered under the economic realities test are:

(1)               The degree of control exerted by the alleged employer over the worker;

(2)               The worker’s opportunity for profit or loss;

(3)               The worker’s investment in the business;

(4)               The permanence of the working relationship;

(5)               The degree of skill required to perform the work; and

(6)               The extent to which the work is an integral part of the alleged employer’s business.

[3] Henderson v. Inter-Chem Coal Co., 41 F.3d 567, 570 (10th Cir. 1994).