In a recent case in the United States District Court for the District of New Jersey, a plaintiffs’ motion for final certification of a collective action under the Fair Labor Standards Act was denied. At its core, Plaintiff Fred Adami and two remaining Opt-In Plaintiffs alleged that their employer, Cardo Windows, Inc. mischaracterized them as independent contractors, rather than employees, and asserted claims for unpaid overtime.

Judge Simandle found that while the Plaintiffs properly alleged common employer practices, they failed to sufficiently demonstrate the similarity between the circumstances of their employment. For example, while Adami was a long-time employee that was at the core of Cardo’s operations, the Opt-In Plaintiffs “worked sporadically and had differing work environments from Adami.” Adami v. Cardo Windows, Inc., No. 12-2804 (JBS/JS), 2016 WL 1241798, at *2 (D.N.J. Mar. 30, 2016).

Specifically, Adami and the Opt-In Plaintiffs worked a considerably different number of hours, which changed on an individual basis. Schedules varied based on customer needs, and the Opt-In Plaintiffs could take breaks when they wished. In addition, Defendants noted that the Opt-In Plaintiffs were entitled to hire “helpers” for each project, and were able to choose both the number and how much each were paid, which changed the profit or loss for each Opt-In Plaintiff. Lastly, while Adami worked for Cardo for approximately ten years, the Opt-In Plaintiffs had worked at the company for just a few months. Subsequently, the Court found that while Adami’s employment relationship had been described in significant detail, there was a considerable amount of evidence that showed Adami’s employment was “the exception rather than the rule.” Adami, 2016 WL 1241798, at *6.

In so finding, the Court applied the “circumstances of the whole activity” test to determine whether an employment relationship existed and noted that it is the plaintiff’s burden to show by a preponderance of the evidence that “all members of the class are all employees covered by the FLSA.” Id. (emphasis in original).

Ultimately, Judge Simandle held that the Opt-In Plaintiffs were closer to independent contractors than employees. As such, the circumstances of each Opt-In Plaintiffs’ employment were too dissimilar for a collective action.

Employers should consider the similarity between their employees’ work, and the degree to which the company controls the day-to-day actions of its employees to determine if they are truly employees or independent contractors. Hill Wallack employment law attorneys are available to help navigate these options and how they may affect clients in New Jersey, New York, and Pennsylvania.

By: Susan Swatski, Esq. (sswatski@hillwallack.com) and Jessica Seiden, Summer Associate

As workplaces take on organizational restructuring, many employees become misclassified as independent contractors. This misclassification has significant impact on workers, particularly in low wage industries. When employees are wrongly characterized as independent contractors, they do not receive labor protection rights, such as minimum wage, overtime, unemployment, and worker’s compensation. The U.S. Department of Labor’s Wage and Hour Division recently provided additional guidance to aid employers in determining how to classify their workers.

An agreement between an employer and a worker designating the worker as an independent contractor is not indicative of the relationship and is not relevant to the status. The Fair Labor Standards Act (“FLSA”) applies a multi-factor “economic realities test” to determine whether a worker is an employee or an independent contractor. A worker who is dependent upon finding employment in the business of others is considered an “employee,” whereas a worker in business for him or herself is considered an “independent contractor.” The Administrator’s application of the “economic realities” test considers six independent factors, and no factor alone is sufficient to determine if a worker is “economically dependent” on the employer; all of the factors must be considered in each case.

The first factor to be considered is whether the work done is an “integral part of the employer’s business.” If the work performed is integral to the employer’s business, it is more likely the worker is economically dependent. Work can be integral even if it is performed away from the employer’s premises. The second factor is whether the “worker’s managerial skill affects the worker’s opportunity for profit or loss.” A worker in business for his or herself will typically have such an opportunity for profit. The focus is whether the worker exercises managerial skills and whether those skills affect the worker’s opportunity for both profit and loss. The third factor to be considered is “how the worker’s relative investment compares to the employer’s investment.” An independent contractor makes investments that support a business beyond one particular job. These investments must be significant to indicate the worker’s independence. Investing in tools and equipment is not necessarily a business investment or capital expenditure that indicates the worker is an independent contractor, because they may simply be required to perform the necessary work for the employer.

The fourth factor is whether “the work performed requires special skill and initiative.” Business skills, judgment, and initiative are more indicative of independent contractor status than technical skills that are used to perform the work. Even specialized skills do not indicate that workers are in the business for themselves. The fifth factor employers should consider is whether the “relationship between the worker and employer is permanent or indefinite.” Permanency suggests employment status, while working on a single project that is not continuous or repeating is more akin to an independent contractor. A lack of permanence with an employer is indicative of independent contractor status if it results from the worker’s own independent business initiative, rather than the operational characteristics of the industry. The sixth and final factor to be considered is the “nature and degree of the employer’s control.” A worker must maintain and exercise meaningful control of his or her work to be considered an independent contractor.

Under the FLSA’s broad definition of employ as “to suffer or permit to work,” most workers fall into the employee category. This expansive definition must be taken into account while applying the “economic realities” test to determine if a worker is truly an independent contractor. Taking into account the ultimate issue of whether the worker is in business for him or herself or economically dependent in the application of the “economic realities” test will prevent the detrimental outcomes of misclassification.

If your company hires independent contractors, you should consider having skilled employment counsel review those workers’ relationship with the company to ensure compliance with the FLSA.

By: Susan L. Swatski, Esq. (sswatski@hillwallack.com) and Bryan A. Coe, Summer Associate (bcoe@hillwallack.com)

An unpaid internship can be beneficial to both interns and employers. Interns can gain valuable experience in their field while employers can help educate people who one day may work for their companies. However, confusion exists as to what type of experience must be provided to an intern for the experience to replace a paycheck. By providing an unpaid internship instead of a paid position, employers put themselves at risk of legal action, which can result in fines and back pay to the intern. A recent decision from the United States Court of Appeals for the Second Circuit provides employers with much needed guidance to craft their internship programs.

In most states, employers must conform to the United States Department of Labor’s Intern Fact Sheet when deciding if an internship qualifies to be unpaid. The DOL’s requirements are: (1) the internship should be similar to training that would be provided in school; (2) the experience should be for the student’s benefit; (3) the intern should not be a replacement for a regular employee, but instead, should be under the supervision of a regular employee; (4) the employer must provide training and not derive an immediate advantage from the intern’s activities; (5) the intern is not entitled to a job at the end of the internship; and (6) both the employer and the intern have an agreement that the intern will not receive payment for work performed. According to the Department of Labor, all six items must be present for an internship to qualify as unpaid.

In Glatt v. Fox Searchlight Pictures, Inc., the United States Court of Appeals for the Second Circuit determined that the proper question to ask is whether the intern or the employer is the “primary beneficiary” from the relationship. The Court of Appeals replaced the Department of Labor’s six factor Intern Fact Sheet with the following seven non-exhaustive factors to aid in answering whether an internship can be unpaid: (1) the extent to which the intern and the employer 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; and, (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. When deciding if a person should be classified as an employee, employers should balance these factors. No one factor is dispositive to conclude the intern should be not considered an employee.

A second important point to be taken away from the Glatt ruling is that interns will find it much harder to certify a class to bring their claims, because although the primary beneficiary test may be partially answered using generalized proof, the more substantial questions require individualized proofs to very fact specific inquiries.

Employers should be aware of the Second Circuit’s break from the DOL’s Intern Fact Sheet and account for the distinctions between the “primary beneficiary test” and the Fact Sheet when creating an internship program. As a general matter, when creating an internship program, employers should focus on the educational component. Programs such as guest speakers and information sessions can help tip the scale towards the internship being more beneficial to the employee. The greater the amount of educational opportunities that are present, the more likely a court will find an intern to be the “primary beneficiary” of the relationship.

Currently, only employers who are located in New York, Connecticut and Vermont are affected by this ruling. However, employers in other states should be aware of this ruling because it shows a change in thinking regarding unpaid internships. If your company offers an unpaid internship, you should have it reviewed by skilled employment law counsel to ensure the program complies with the law in your jurisdiction.

By: Susan L. Swatski, Esq. (email / link to bio)

On October 12, 2012, nine legal and workers’ rights organizations urged the Court of Appeals for the Second Circuit to label John Catsimatidis, the owner and CEO of New York City grocery chain Gristedes Foods Inc., an “employer” under the Fair Labor Standards Act (“FLSA”) which would make him personally, jointly and severally liable for a $3.5 million overtime class action settlement.