A federal district court in Florida erred in concluding that a class of cable, internet, and digital phone technicians were independent contractors not protected by the Fair Labor Standards Act, the U.S. Court of Appeals for the Eleventh Circuit decided July 16 (Scantland v. Jeffry Knight Inc., 11th Cir., No. 12-12614, 7/16/13).
Reversing summary judgment for Jeffry Knight Inc., which does business as Knight Enterprises, the Eleventh Circuit found material factual disputes as to whether the technicians actually were FLSA-covered employees under a six-factor “economic reality” test.
The evidence shows that Knight exercised “significant control” over the technicians, the workers' opportunity for profit or loss depended on the company's work orders, and the technicians generally had long tenures with Knight and rendered services that constitute an “integral part” of its business, the court said. It found that those factors point “strongly” toward employee status for the technicians.
Although two other factors pertaining to investment in equipment and special skills favored a finding of independent contractor status, the court said they did so “only weakly.”
Judge R. Lanier Anderson wrote the opinion, joined by Judges Ed Carnes and Frank M. Hull.
According to the court, Knight had a contract to provide installation and repair services to Bright House Networks, a cable company in Florida.
The company provided BHN's hardware for installations, but the technicians were required to have “vehicles, auto insurance, tools and safety equipment, and commercial general liability insurance,” the court said. It also trained technicians and assigned them to take unpaid ride-alongs with experienced technicians.
Knight required its technicians to sign “Independent Contractor Services Agreements” that purportedly allowed technicians to “decline any work assignments,” and to hire “helpers.”
However, the technicians alleged they could not reject work assignments without being threatened with termination or having work withheld. They also claimed that their authority to hire help was “illusory,” as Knight required those helpers to also contract with it.
The technicians reported to a Knight facility every morning between 7 a.m. and 7:15 a.m. and turned in the previous day's equipment and work orders, the court recounted. The work orders included billing codes set by Knight that determined technicians' pay for particular jobs. Company managers had the power to lower technicians' pay by unilaterally changing the billing codes.
Thereafter, technicians received a route that included the current day's work orders. Throughout the day, Knight required them to log in and out of a cellular service called Work Force Management to indicate “when they arrived on a job, when they completed a job, and what their estimated time of arrival was for their next job,” the court summarized.
The technicians could not sell non-BHN services to customers, but could “upsell” by convincing customers to buy additional BHN services. Knight had to approve those upsell orders.
If technicians had downtime, they had the option to request additional jobs. However, Knight could also require them to complete additional assignments or assist other technicians.
Knight retained the power to conduct “site checks” of technicians' work, to track their “quality control discrepancy rate,” and to levy “chargeback” fines--typically $100 to $150 deductions from technicians' paychecks--if a technician failed to meet client specifications for an installation, incorrectly used Work Force, misplaced inventory, or arrived late to work.
The technicians claimed they regularly worked five to seven days per week, with their total hours exceeding 40. In addition, they alleged they could not work for other companies.
Current and former technicians sued Knight under the FLSA, and the U.S. District Court for the Middle District of Florida conditionally certified the suit as a collective action.
However, the court ultimately granted summary judgment to Knight upon finding that the technicians were not entitled to the FLSA's overtime and minimum wage protections because they were independent contractors, and not employees.
On appeal, the Eleventh Circuit reversed and remanded the case to the district court because the evidence indicated that the technicians were employees economically dependent on Knight.
In determining whether a worker is an FLSA-covered employee or an exempt independent contractor, the appeals court explained that it must “look to the 'economic reality' of the relationship between the alleged employee and alleged employer and whether that relationship demonstrates dependence.”
It added that courts generally apply a multi-factor “economic reality” test to analyze employment status.
Here, the court said, the technicians and Knight relied on the following factors: the nature and degree of Knight's control over the technician's work; the technicians' opportunity for profit or loss depending on their managerial skills; and the technicians' investment in equipment or materials or employment of more workers.
Additionally, they considered whether services provided by the technicians required “special skill,” whether those services formed an “integral part” of Knight's business, and whether the working relationship between technicians and Knight was permanent in nature.
The appeals court observed that the six factors serve as “guides,” and that no one factor is controlling.
“More importantly, the final and determinative question must be whether the total of the testing establishes the personnel are so dependent upon the business with which they are connected that they come within the protection of the FLSA or are sufficiently independent to lie outside its ambit,” the court said. “Ultimately, in considering economic dependence, the court focuses on whether an individual is 'in business for himself' or is 'dependent upon finding employment in the business of others.' ”
Turning first to the control factor, Knight “exercised significant control” over the technicians such that “they did not stand as 'separate economic entities' who were 'in business for themselves,' ” the Eleventh Circuit ruled.
“In sum, Knight controlled what jobs plaintiffs did, how much they were paid, how many hours they worked, how many days they worked, their daily work schedule, whether they could work for others, whether they could earn additional income from customers, and closely monitored the quality of their work,” the court said.
Moreover, the technicians lacked the power to bid for jobs or negotiate the prices for their jobs, and their ability to “hire and manage others was illusory,” it said.
“This alleged control strongly suggests that the plaintiffs were economically dependent upon Knight,” the court ruled.
Knight argued that it did not control the technicians by requiring them to adhere to client specifications, maintain periodic communication, and satisfy quality control measures.
But the court pointed out that the manner of the technicians' work “was tightly regulated by Knight and left them with no discretion in how to approach a particular job,” that the required communication “was constant, not periodic,” and that the quality control measures “are just one of numerous indicia of control that together strongly suggest an employee-employer relationship.”
Moreover, one of Knight's quality control measures--the chargebacks--seem “more consistent with disciplining employees,” the court said.
Although Knight contended that those measures and its regulation of technicians' work schedules “stemmed from 'the nature of the business,' ” the court said the economic reality test examines the nature and degree of an alleged employer's control, not why it exercised such control.
“Business needs cannot immunize employers from the FLSA's requirements,” the court said.
In addition, the Eleventh Circuit held that the technicians' opportunity for profit or loss depended on Knight's work orders and not their own managerial, or entrepreneurial, skills.
“Plaintiffs' opportunity for profit was largely limited to their ability to complete more jobs than assigned, which is analogous to an employee's ability to take on overtime work or an efficient piece-rate worker's ability to produce more pieces,” the court said.
The technicians could not set or negotiate billing code rates, which Knight could unilaterally change, and they could not contest chargebacks deducted from their paychecks, the court said. Although technicians could upsell to customers, even those orders had to be approved by Knight, it added.
Furthermore, the technicians could not work for other companies, the court said.
The appeals court also found that the permanency and duration of the working relationship between Knight and the technicians weighed in favor of employee status. It observed that technicians worked “an average of more than five years,” and had annual contracts that were automatically renewed and were terminably only with 30 days' notice.
Lastly, the Eleventh Circuit ruled that the services provided by the technicians constituted an “integral part” of Knight's business, which “strongly” indicates employee status.
The court said Knight's contract with BHN makes up two-thirds of its business, adding that Knight's own website describes its installation services as the “ 'backbone' of its business,” the court said.
“[B]ecause of Knight's concern with the quality of the services it provides through this arrangement, it does, as one might expect, control the relationship in much the same way a company would control its employees,” the court said.
The appeals court acknowledged that the remaining two economic reality factors--investment in equipment and special skill--favor independent contractor status for the technicians, but that they do so “only weakly.”
Although technicians provided their own vehicles and tools--generally purchased directly from Knight through payroll withholdings--there “seems to be little need for significant independent capital and very little difference from an employee's wages being decreased in order to pay for tools and equipment,” the court said.
As for special skill, the court agreed that the technicians “were clearly skilled workers,” but pointed out that “Knight provided most technicians with their skills” through training and ride-alongs.
“The skills attained by technicians point toward a degree of economic dependence insofar as a highly trained technician could gain economic independence by the ability to market his skills to a competing employer,” it said. “This does not, however, significantly distinguish such a worker from the 'usual path of an employee.' ”
Harold L. Lichten, Shannon Liss-Riordan, and Ian O. Russell of Lichten & Liss-Riordan in Boston, and James A. Staack and Gary Cors of Staack Simms & Hernandez in Clearwater, Fla., represented the technicians. Luis A. Cabassa and Steven G. Wenzel of Wenzel Fenton Cabassa in Tampa, Fla., represented Knight Enterprises.
Text of the opinion is available at http://www.bloomberglaw.com/public/document/Michael_Scantland_et_al_v_Jeffry_Knight_Inc_et_al_Docket_No_12126.
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