Many employers seek to reduce cost by hiring independent contractors to perform some work. The employer does not have to pay benefits to an independent contractor. But, what is an independent contractor? The IRS uses one test to determine whether an employee is a true independent contractor and not just an employee under a different name. Department of Labor uses a different test. But, a recent decision by the Fifth Circuit Court of Appeals addresses factors found in both tests.
Cromwell, Et Al v. Driftwood Contractors, Inc. Et Al was decided on Oct. 12. Cromwell and another man worked for Driftwood performing a great deal of electrical work in the aftermath of Hurricane Katrina. Cromwell and his co-worker invested $70,000 in providing their own equipment, says Mike Maslanka. They provided their own insurance and paid their own taxes. They were so busy that they could not work for anyone else. That factor made the difference, says Mr. Maslanka. Because, the Fifth Circuit concluded they were so economically dependent on Driftwood that they were actually employees, and were not independent, at all.
This was a Fair Labor Standards Act lawsuit. Cromwell and his co-worker had filed suit for overtime wages. By claiming overtime wages, Cromwell and his co-worker were claiming they were employees, not independent contractors. Summary (ie, "quick") judgment had been granted in favor of the employer, Driftwood, at the lower court. But, the Fifth Circuit reversed that summary judgment, a rare move for the Fifth Circuit. So, economic dependence can make a difference, even to the Fifth Circuit.