Employment Law “Forget the Labels-Know Your Rights”

Many of the hard working people in today’s labor force have money and benefits taken from them in the workplace—by their own company. Misclassification of workers as independent contractors and improper application of overtime exemptions are ways that businesses attempt to unlawfully reduce labor-related expenses. Companies save thousands (and millions) of dollars each year by engaging in these practices, which result in wrongful denial of substantial benefits, rights, and/or pay. Most workers are simply unaware they’re being improperly misclassified or exempted. Those aware are often afraid to complain, for fear of discipline or termination. When in doubt, you should always seek the advice of an attorney to determine whether your employer is engaging in one of the illegal practices described below.

A. Exemptions to Overtime Pay
One way that businesses cut costs is by minimizing overtime pay. Employers typically achieve this by applying one of the several exemptions permitted by the Fair Labor Standards Act, as exempt employees are not entitled to overtime pay. These exemptions include “executive,” “administrative,” “professional,” “computer employee,” and “outside sales,” among others. However, as with misclassifications, merely because an employer labels an employee as exempt, does not mean that characterization is correct. For example, the following factors—each of which must be satisfied—determine whether an employee truly falls under the executive exemption:
The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $913 per week (or $47,476 annually for a full-year worker);

The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
Unless each one of these factors is met, the employee does not qualify under the executive exemption, and he/she must be paid overtime (unless another exemption applies). As another example, the following factors define whether an employee truly falls under the commonly-applied administrative exemption:
The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $913 per week (or $47,476 annually for a full-year worker);

The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Once again, unless each one of these factors is met, the employee must be paid overtime (unless another exemption applies). As with misclassifications, employers have substantial financial incentives to avoid paying overtime, which must be paid at a rate of one and one-half times the employee’s regular rate of pay for all hours worked beyond forty (40) in a workweek (and in several states, beyond eight (8) in a workday).

Once again, unless each one of these factors is met, the employee must be paid overtime (unless another exemption applies). As with misclassifications, employers have substantial financial incentives to avoid paying overtime, which must be paid at a rate of one and one-half times the employee’s regular rate of pay for all hours worked beyond forty (40) in a workweek (and in several states, beyond eight (8) in a workday).

B. Employees v. Independent Contractors
Businesses often characterize workers as “independent contractors,” and treat them accordingly. This practice is, by itself, not improper. However, employers have significant financial incentives to maximize the number of workers classified as “independent contractors.” Unlike “independent contractors,” workers characterized as “employees” typically receive costly benefits, which may include overtime pay, minimum wage, medical insurance, life insurance, 401(k), pension, holiday pay, sick pay, paid time off, family and medical leave, workers’ compensation, unemployment insurance, salary increases, promotional opportunities, rights to appeal disciplinary actions, and more. For independent contractors, these various benefits are denied, taxes are not withheld, and a Form 1099-MISC is provided at the end of each year purportedly confirming that they are not employees. But beware—a worker may truly be an “employee,” despite being told they’re not. The Fair Labor Standards Act, regulations and interpretations of the U.S. Department of Labor, and decisions of courts nationwide have made clear that companies may not simply place labels on workers, or pay them in certain ways or intervals, in order to avoid treating them as “employees.” Rather, the following factors define the true relationship:
(1) the extent to which the work performed is an integral part of the employer’s business;
(2) whether the worker’s managerial skills affect his or her opportunity for profit and loss;
(3) the relative investments in facilities and equipment by the worker and the employer;
(4) the worker’s skill and initiative;
(5) the permanency of the worker’s relationship with the employer; and
(6) the nature and degree of control by the employer.
This analysis is not mechanically applied, and no one factor is determinative of whether a worker is truly an “employee” or an “independent contractor.” Rather, these factors seek to determine the economic realities of the situation, in other words, whether a worker is economically dependent on the employer (i.e., an “employee”) or instead is in business for himself (i.e., an “independent contractor”). Accordingly, the more vital an individual is to the business, and the more control the business exercises over the individual’s work, the more likely that individual should be classified as an “employee.”

If you have any doubt as to whether your employer properly classified you as an “independent contractor,” or has properly denied you overtime on the basis of an exemption, you may be entitled to recover the amounts withheld from you, and potentially much more. To determine whether your rights may have been violated, contact attorney David A. Weisz in the Marietta, Georgia office of Johnson & Weaver, LLP, either by email at [email protected] or by phone at (770) 200-3108. You can also contact Partner Attorney Frank J. Johnson in the San Diego, California office either by email at [email protected] or by phone at (619) 230-0063.