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Finally A Win for Employer on Independent Contractor Classification!

by Adair Melinsky Buckner on Mar. 08, 2013

Employment Labor Law 

Summary: Court finds workers really were independent contractors.

Texas Court Finds a Real Independent ContractorTexas Court Finds A Real Independent Contractor

Finally, a victory for an employer on an independent contractor worker classification!  This usually is a losing battle for employers who try to classify workers as independent contractors instead of employees, thus avoiding payment of overtime, minimum wage, withholding and social security taxes, and the like. Many employers have been subjected to Department of Labor audits and private collective action lawsuits (or Texas Workforce Commission or IRS audits) over this issue and have lost.

Recently, however, the Federal District Court for the Southern District of Texas held that gate attendants who worked with a prominent provider of oilfield gate attendant services correctly were classified as independent contractors under the FLSA. Gate Guard Servs., L.P. v. Solis, 2013 U.S. Dist. LEXIS 20156 (S.D. Tex. Feb. 13, 2013).  This case is a primer for employers on what it takes to meet the heavy burden of supporting such classification of a worker.

The case background is very interesting and shows what a high-stakes issue this was.  Gate Guard contracted with about 400 gate attendants to log vehicles entering and leaving oilfield operation site.  The gates had to be manned either 12 or 24 hours per day, and thus, most attendants lived at the gate site during the assignment.  Gate Guard paid them between $100 and $175 per day.  DOL launched an investigation and concluded that the attendants were employees and Gate Guard owed the attendants minimum wage for 24 hours each day they were assigned to an oilfield operation and overtime, amounting to over $6 million in back wages and required Gate Guard to immediately reclassify the workers as employees.  Gate Guard filed a declaratory judgment action challenging DOL’s finding and seeking court approval of the independent contractor status.  DOL filed a separate action to enforce its investigation results.  Ultimately, the two actions were combined and the court issued a summary judgment in favor of Gate Guard.

The court noted in its opinion and conclusion, that every determination of employee versus independent contractor is very fact dependent, and in most instances, there are facts pointing in both directions.  The core test here, as in all of these situations comes down to, “whether, as a matter of economic reality, the worker is economically dependent upon the alleged employer or is instead in business for himself.”

The court sorted through a whole laundry list of facts present in this case, and the review of facts is very instructive to employers on what will support an independent contractor determination and what points the other way.  Here, as in many such situations, there was a written agreement outlining the independent contractor status and its terms.  That alone is definitely not conclusive, as many employers have found out.  In addition, though, the court found the balance of facts favored the independent contractor status.  The gate attendants were paid a fixed day rate for their time guarding any given oilfield gate, worked sporadically, and were offered gate assignment by Gate Guard on a “take-it or leave-it basis” and could reject any assignment without consequences.

The judge looked at five primary “economic realities” factors used to determine validity of an independent contractor classification of a worker:  the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship. The court said that the employer’s lack of control and supervision of gate attendants, the attendant’s opportunity for profit or loss, and the sporadic, impermanent nature of the work all supported an independent contractor status.

Other facts the court found supported the finding were: 1) a written agreement setting forth the relationship as a contractor relationship; 2) industry custom; and 3) the federal government’s use of independent contractors to perform substantially similar services.

The court’s opinion in this case is a great learning tool on the factors employers should review before trying to classify a worker as an independent contractor instead of an employee.  Contact me if you would like me to send you a copy.

Adair Buckner is an Amarillo attorney with Buckner & Cross, L.L.P.  She is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. Her other areas of practice include business law, business disputes, commercial litigation, estate planning, and probate. You can reach Adair at (806)-322-7777 oradair@bucknercross-law.com. This material is not intended to be legal advice. The contents are intended for general information purposes only.

To learn more about Adair visit her profile page and her practice labor and employment law.

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