Employee vs. Independent Contractor: Labels Don’t Control the Outcome, Says the Eleventh Circuit

In assessing whether a worker is an employee or an independent contractor, the Eleventh Circuit recently re-confirmed that it “does not care about the label put on the relationship by the parties.” Galarza v. One Call Claims, LLC involved three insurance adjusters who worked for Texas Windstorm Insurance Association (TWIA). TWIA engaged the services of One Call Claims, LLC (OCC), a business that staffed insurance companies with adjusters. The plaintiffs, who had all entered into written independent contractor agreements with OCC, sued, alleging that both companies had misclassified them and failed to pay them overtime wages they were entitled to as “employees” under the Fair Labor Standards Act (FLSA).

The plaintiffs handled claims for TWIA on a full-time basis for approximately two years. During that time, they could not work for other carriers without terminating their contractual relationship with TWIA. They used their own phones and cars, and maintained their own professional licenses, but had no control over their rate of pay or hours. Moreover, TWIA prescribed the manner in which the plaintiffs were to perform their jobs, even when it shifted them to remote work.

The Eleventh Circuit used the six-factor framework provided in Scantland v. Jeffrey Knight, Inc., 721 F.3d 1308, 1311–12 (11th Cir. 2013), to assess the misclassification claim. The court pointed out that no single factor is determinative or outweighs any other. Rather, the proper test of whether a worker is an independent contractor or employee is the economic reality of the relationship, specifically the extent to which the worker is economically dependent on the company. The court painstakingly reviewed each factor, opining that all but one—special skills—appeared to weigh in favor of employee status. Thus, the court reversed the trial court’s grant of summary judgment for the companies, finding that a jury should decide whether they were employees under the circumstances. 

The appeals court noted that the significant control both companies exercised meant the plaintiffs lacked independence in managing profits or investing in their work despite being able to claim some personal expenses as tax deductions. Further, the indefinite term of their relationship with the companies and the essential nature of their services to the companies’ business operations suggested the companies should have classified plaintiffs as employees, not independent contractors, under the FLSA. According to the court, “if a jury could not reasonably find that the workers were economically dependent under these facts, it’s not clear that a professional working from home could ever establish economic dependence under the FLSA.”

This opinion is a valuable reminder that labeling a worker as an independent contractor will not make it so. Instead, the totality of the circumstances must be considered to determine the economic reality of the relationship. Employers and practitioners should be vigilant in evaluating working relationships based on substance, not form, keeping in mind that misclassification can result in significant legal and financial consequences.