A recent decision by the Seventh Circuit has altered the landscape of how employees/contractors are determined. In Simpkins v. DuPage Housing Authority, Anthony Simkins was a general laborer that signed “independent contractor agreements” with the DuPage Housing Authority in 2009 and 2012 to perform general labor on some vacant properties. The job was full time but provided no benefits and Simpkins was responsible for his own taxes. The housing authority directed Simpkins on which jobs to perform and established the priority for each job. Simpkins repeatedly objected to his job classification and asked to be reclassified as an employee to receive benefits, but to no avail. Simpkins was injured in a car accident and sued to recover unpaid overtime and disability benefits under the FLSA. He was found to be a contractor in state court, but the Seventh Circuit reversed and ruled that Simpkins was an employee who was entitled to such benefits.
The court had long ago adopted the “economic realities” test, which was later embraced and used by the Department of Labor in 2015. The factors under the economic realities test included:
- The nature and degree of the alleged employer’s control as to the manner in which the work is to be performed;
- The alleged employee’s opportunity for profit or loss depending upon his managerial skill;
- The alleged employee’s investment into equipment or materials required for his task, or his employment of workers;
- Whether the service rendered requires a special skill;
- The degree of permanency and duration of the working relationship; and
- The extent to which the service rendered is an integral part of the alleged employer’s business.
These factors were to be viewed in whole with no one factor outweighing the other. The court in Simpkins used this same test, but chose to place foremost importance on the first factor, the employer’s control, in its determination of the parties’ relationship. The court found that there was evidence that the housing authority exerted control over Simpkins because they told Simpkins what to do and when to do it. Examining the other factors, the record indicated that the housing authority purchased everything that Simpkins needed to do the work, meaning that he was not responsible for tools and equipment, as most contractors are. Simpkins’ work was general labor and not work requiring a specific skillset, and his contract was open ended, suggesting a potentially permanent relationship.
The Seventh Circuit still used the factors of the “economic realities” test to come to its conclusion that Simpkins was an employee, but the heavy importance placed on the employer’s control is important for those companies that use contractors. Even though Simpkins and the housing authority both entered into agreements where they identified that Simpkins was an independent contractor, the court still disregarded those agreements based on the nature of the relationship. Going forward, companies should pay special consideration to the actual tasks of contractors and their relationship with the company. A contract may say independent contractor, but if the person was hired to work primarily for the company, they will likely be considered an employee regardless of the contract.
Employer control is the foremost consideration in the eyes of the Seventh Circuit and companies who hire independent contractors should be cognizant of the extent of their relationship and control over their contractors to avoid potential claims such as ones made in Simpkins.