One issue that comes up repeatedly is whether an individual is an independent contractor or an employee.  The reason this comes up quite often in an employment law context is because most employment laws only apply to employees.  For example, the retaliation provision of Title VII, which prohibits retaliation for reporting unlawful discrimination, expressly applies only to employees.** The difference also matters for benefits, overtime pay, minimum wage, and tax consequences.  Very broadly speaking, independent contracts are usually cheaper for employers than employees.  Because of that, employers often misclassify employees as independent contractors.  This blog post looks at what that means.

Courts and agencies use several different tests to determine whether or not a particular worker is an employee or an independent contractor.  For example, the IRS and the Texas Workforce Commission both use a 20 point test to determine employee or independent contractor status.  It is by no means, the only one though.  There is also the economic realities test, the control test, and the hybrid economic realities/control test.  In the Fifth Circuit, which is the federal judicial district that Texas is in, federal courts apply the hybrid test, but weigh the control element over the economic realities side.

The economic realities test is just what it sounds like: does the employer or the individual control the worker’s economic reality.   For example, this test asks questions like: is the worker paid a salary, hourly, or by the job? Are taxes withheld from the payments?  Does the employer provide the worker benefits?  The control test considers whether a worker’s conduct is subject to control by the employer.  Specifically, does the employer have the right to hire and fire the worker, the right to supervise, the right to correct behavior, the right to set the work schedule, etc.  The hybrid test simply asks all of those questions.  As mentioned before, in the Fifth Circuit, under the hybrid test, the right to control is the most important component.

In Burton v. Freescale, a Fifth Circuit case, the defendant, Freescale, argued that it was not an employer because it did not “handle payroll, withhold taxes, provide benefits, workers compensation insurance, or set the terms and conditions of employment” for the plaintiff.  Nevertheless, the Fifth Circuit found an employment relationship because:

Freescale had the right to demand Burton’s termination from the assignment.  Freescale supervised Burton.  Complaints against her were made by Freescale personnel . . . .  Freescale employees completed performance reviews of Burton’s work.  On-the-job corrections and admonishment were delivered by Freescale employees.  Most fundamentally, it was Freescale that decided and insisted that Burton be fired.  Burton has offered adequate evidence of an employment relationship.

It is important to note that the proper classification cannot be modified by agreement and the label used in any employment agreement is not dispositive.  Indeed, it is often the case that agreements labelling an individual as an independent contractor go on to then answer all of the above the questions in favor of the employer.  In other words, the employer was trying to misclassify the employee as an independent contractor.  Companies within some industries are more notorious for misclassifying employees than others.  For example, construction, housecleaning, concert/performance venues, and trucking companies all seem to misclassify employees at a high rate.  This issue is expected to grow more and more pronounced with the proliferation of the gig economy and with companies such as Uber and Lyft—both of which have been found to have misclassified employees as independent contractors.     

So what can you do about that? One way is to file an SS-8 form with the IRS to get a determination that you are an employee not an independent contractor.  If you believe you’ve been both misclassified and discriminated or retaliated against, then you can file a charge of discrimination with the Equal Employment Opportunity Commission or the Texas Workforce Commission and the particular agency will investigate both issues.  But before you do either of those things, you should contact a plaintiff’s side employment firm like Wiley Walsh, P.C. to talk about it with a Texas Employment Attorney.


**Why did I single out the retaliation provision and not say just generally Title VII?  Well, that is a whole other (later) blog post and the subject on one of our cases currently on appeal in the Fifth Circuit.  The short answer is that the discrimination section of Title VII uses the word “individual” not employee and there is a growing body of caselaw saying that the Title VII prohibits discrimination against more than merely employees.  See, e.g., Sibley Memorial Hospital v. Wilson, 488 F.2d 1338, 1341 (1978)