One of the most prevalent issues in claims under the Fair Labor Standards Act and the various employment discrimination laws is whether the claimant is a common law employee or an independent contractor. The importance of that issue is that employees are legally protected and can sue employers under federal and state employment laws, while independent contractors have no such protection or right. An important factor to consider from the inception is that the prevailing plaintiff in FLSA cases automatically wins an attorney’s fee, usually based on the total hours spent on the case.
Defending on the employee-independent contractor issue protracts the case and adds to the attorney’s fees if the case settles or the employer suffers a verdict. Courts must automatically award fees to prevailing plaintiffs, sometimes in excess of the recovery, while prevailing defendants have an uphill fight to recover (and collect) fees. This means, in effect, that in FLSA cases the employer often pays the attorney’s fees of both sides. It is nonetheless common in employment actions for employers to claim as a defense that the claimant is an independent contractor and thus unprotected.
This issue is treated as an affirmative defense, meaning that it is usually a jury issue in which each side must prove its point. This adds a lot of expense and risk to cases, beginning at the summary judgment stage and especially if the issue goes to trial. The additional expense part is obvious. Part of the risk is that the outcome of the action takes a lot longer than is the case if the claimant is clearly an employee, the defendant rightly concedes that, and the issue is therefore not litigated. The ultimate risks are, of course, the employer losing on that issue and losing the case, or settling it for a lot more than if it had been settled earlier, and in either case, paying its own and the other party’s fees and taxable costs.
There is also risk involved for plaintiffs and their lawyers when the court, as sometimes happens, holds that the claimant is an independent contractor, and the plaintiff or lawyers turn out to have erroneously protracted the proceeding and then lose it. Those risks are a disappointment for the claimant and a loss of time and front costs for the lawyers.
My own estimate based on experience and observation is that, in cases where the issue is litigated, employers lose on that issue in 75 percent or more of the cases. I have even seen one case, involving real estate salespersons assigned to show and sell specific houses, in which a summary judgment was granted, the court holding that the salespersons were employees.
Many employers prefer that those who work for them be independent contractors. There is no withholding, no social security contribution, no workers’ compensation and, most importantly, no coverage under the Fair Labor Standards Act, Title VII of the 1964 Civil Rights Act and the other often utilized employment discrimination laws.
In mediations of employment cases involving this issue, it is well for the mediator to have an understanding of it. While we do not give legal advice, (even if one party needs it), our knowing which way a case will probably go is useful in getting cases settled.