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THE PRISM OF ENTREPRENEURSHIP: CREATING A NEW LENS FOR
WORKER CLASSIFICATION Griffin Toronjo Pivateau, J.D.*
Introduction ...................................................................................... 596
Overview ................................................................................ 596
The distinction between employee and independent
contractor ......................................................................... 597
The law provides employers with little guidance .................. 599
Courts use the economic realities test to classify workers under
the FLSA ................................................................................ 603
Examining the roots of the statute ......................................... 603
The drafters of the FLSA wanted to protect workers ............ 605
Courts use a variety of worker classification tests to determine
worker status .......................................................................... 607
The FLSA’s employment-related definitions fail to satisfy
the statute’s purposes ...................................................... 607
The right to control test .......................................................... 608
The elements of the economic realities test ........................... 611
The economic realities test has failed to cope with the modern
institution of employment ...................................................... 618
The economic realities test is designed to measure the
worker’s economic dependence on the employer ........... 618
The economic realities test is unrelated to the definitions
found in the statute .......................................................... 619
The economic realities test produces inconsistent results...... 619
The economic realities test cannot cope with the sharing
economy .......................................................................... 622
The economic realities test is not compatible with
innovative working arrangements ................................... 625
*Puterbaugh Professor of Legal Studies and Ethics in Business, Spears School of Business, Oklahoma State University. The author wishes to thank attendees at the 2017 Academy of Legal Studies in Business conference for their valuable feedback on the first draft of this article.
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Independent contractor status is best measured by the
entrepreneurial nature of the work ......................................... 628
Entrepreneurship shares common aspects ............................. 629
There are three dimensions of entrepreneurship .................... 631
Process ............................................................................. 631
Behavior .......................................................................... 632
Outcome .......................................................................... 632
Creating a legal entrepreneurial test requires consideration
of each dimension of entrepreneurship ........................... 632
Entrepreneurship requires innovation ............................. 633
Entrepreneurship requires risk ........................................ 634
Entrepreneurship requires results .................................... 635
Conclusion ....................................................................................... 636
INTRODUCTION
Overview
Courts use the economic realities test to determine whether a worker is an employee and thus protected by the Fair Labor Standards Act (“FLSA” or “the Act”).^1 Unfortunately, the economic realities test fails to accomplish the purposes of the statute. Use of the test creates inconsistent results, fails to provide accurate guidance to employers, and is unsuitable for changing employment arrangements. In this article, I examine the history and purpose of the FLSA. I then turn to three subject areas that create difficulties: the problem of inconsistent results, the challenges of the sharing economy, and the throttling of innovative work arrangements. I then turn to the academic literature of entrepreneurship to understand the elements of entrepreneurship. I propose a revised interpretation of the economic realities test. I focus on the second element of the test: whether evidence exists of entrepreneurial opportunity. I propose that this element become primary. In essence, courts should view the question of independent contractor status through the prism of entrepreneurship. Defining entrepreneurship is (^1) Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 301 (1985).
598 BAYLOR LAW REVIEW [Vol. 70: employees.^8 The FLSA also mandates that employers maintain payroll records for employees.^9 These requirements do not apply to an employer who retains independent contractors.^10 Thus, classification of a worker as an employee or independent contractor creates important consequences. A host of laws will protect the worker only if the worker is an employee. Independent contractors are self-employed workers, who retain personal responsibility for the payment of Social Security taxes, Medicare taxes, and any worker’s compensation protection.^11 Accordingly, the employer may be able to avoid much of the costs associated with employees by using independent contractors. An employer has a strong monetary incentive to classify workers as independent contractors rather than as employees.^12 At a minimum, an employer who uses independent contractors in lieu of employees is no longer responsible for wages prescribed by the law.^13 Furthermore, an employer who classifies his workers not as employees but as self-employed entrepreneurs may avoid costly regulations, the payment of fees and expenses, the costs of withholding—including the necessary administrative staff to oversee the withholding, the payment of benefits, and the funding of retirement plans.^14 Misclassification has a societal effect as well. The confusion in worker classifications harms competitiveness. If one employer misclassifies its workers as independent contractors, it may achieve an unfair competitive (^8) 29 U.S.C. §§ 201 – 219 (2012 & Supp. IV 2017); see also U.S. DEP’T OF LABOR, OFFICE OF THE ASSISTANT SEC’Y FOR POLICY, WAGES AND HOURS WORKED: MINIMUM WAGE AND OVERTIME PAY (2016) (describing the employers subject to FLSA requirements). (^9) 29 U.S.C. § 211(c) (2012) (“Every employer subject to any provision of this chapter or of any order issued under this chapter shall make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions... .”). (^10) See U.S. GOV’T ACCOUNTABILITY OFF., GAO- 09 - 717, EMPLOYEE MISCLASSIFICATION: IMPROVED COORDINATION, OUTREACH, AND TARGETING COULD BETTER ENSURE DETECTION AND PREVENTION (2009). (^11) LALITH DE SILVA ET AL., PLANTIMATICS, INC., INDEPENDENT CONTRACTORS: PREVALENCE AND IMPLICATIONS FOR UNEMPLOYMENT INSURANCE PROGRAMS 91 – 92 (2000), https://wdr.doleta.gov/owsdrr/00-5/00-5.pdf. (^12) Ruth Burdick, Principles of Agency Permit the NLRB to Consider Additional Factors of Entrepreneurial Independence and the Relative Dependence of Employees When Determining Independent Contractor Status Under Section 2(3) , 15 HOFSTRA LAB. & EMP. L.J. 75, 76 (1997). (^13) See Micah Prieb Stolzfus Jost, Independent Contractors, Employees, and Entrepreneurialism Under the National Labor Relations Act: A Worker-by-Worker Approach , 68 WASH. & LEE L. REV. 311, 313 (2011). (^14) See id.
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advantage over those employers classifying workers as employees. An employer can substantially reduce its labor cost through the use of independent contractors.^15 On the other hand, the employer who voluntarily classifies its workers as employees rather than independent contractors risks saddling itself with unnecessary burdens.^16
The law provides employers with little guidance
Defining the status of a worker has troubled courts and administrative agencies for years. The ongoing struggle to distinguish between employees and independent contractors has been “lengthy and confused.”^17 As the Supreme Court acknowledged, “[t]here are innumerable situations... where it is difficult to say whether a particular individual is an employee or an independent contractor.”^18 Unfortunately, the law provides employers with little guidance in making worker classification decisions. Employers face a system that distinguishes between employee and independent contractor, but that provides little guidance to making the proper classification. Employers wishing to strike contractual agreements to clarify independent contractor status will likely be frustrated, as those agreements are routinely disregarded.^19 Ordinarily when construing the validity of a contractual agreement, a court will start with the actual language of the agreement.^20 But this approach does not work in the classification arena. Instead, the agreement between the employer and the worker receives little weight in the determination of employment status.^21 For instance, in Vizcaino v. Microsoft Corp. , the employer signed a number of agreements with workers.^22 Each of the agreements stated that (^15) See MICHAEL P. KELSAY ET AL., UNIV. OF MO.-KANSAS CITY, THE ECONOMIC COSTS OF EMPLOYEE MISCLASSIFICATION IN THE STATE OF ILLINOIS 2 – 3 (2006), http://www.faircontracting.org/PDFs/prevailing_wages/Illinois_Misclassification_Study.pdf. (“Firms that misclassify can bid for work without having to account for many normal payroll- related costs. This illegal practice can decrease payroll costs by as much as 15 to 30%. This places employers who correctly classify their employees at a distinct competitive disadvantage.”). (^16) See id. at 2 (“[T]he conditions for a fair and competitive marketplace are sabotaged.”). (^17) Jeffrey M. Hirsch, Employee or Entrepreneur? , 68 WASH. & LEE L. REV. 353, 353 (2011). (^18) NLRB v. United Ins. Co. of Am., 390 U.S. 254, 258 (1968). (^19) Jost, supra note 13 , at 345–46. (^20) CSC Credit Servs., Inc. v. Equifax Inc., 119 F. App’x 610, 613 (5th Cir. 2004). (^21) Jost, supra note 13 , at 346. (^22) 120 F.3d 1006, 1010 (9th Cir. 1997).
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employer.^30 The July 2015 AI set out a six-factor test, known as the economic realities test, to guide employers in determining whether an individual is economically dependent on the employer.^31 The Department emphasized that the six-factor test should be applied “broadly.”^32 In the original AI, the DOL stated that “most workers are employees under the FLSA”^33 and noted that courts must remain focused on the “economic realities” of the worker/employer relationship.^34 Furthermore, the AI indicated that the DOL would increase its enforcement efforts aimed at misclassified independent contractors.^35 The guidance also signaled that the DOL would closely scrutinize any worker a company classified as an independent contractor.^36 Although it appears that the DOL abruptly shifted course, the meaning of the AI withdrawal remains questionable. For instance, in the same news release announcing the withdrawal, the DOL qualified the effect and meaning of its decision.^37 The DOL noted that “removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act... as reflected in the Department’s long-standing regulations and case law. The Department will continue to fully and fairly enforce all laws within its jurisdiction including the Fair Labor Standards Act... .”^38 At the time of the announcement, the (^30) U.S. DEP’T OF LABOR, ADMINISTRATOR’S INTERPRETATION NO. 2015 - 1, THE APPLICATION OF THE FAIR LABOR STANDARDS ACT’S “SUFFER OR PERMIT” STANDARD IN THE IDENTIFICATION OF EMPLOYEES WHO ARE MISCLASSIFIED AS INDEPENDENT CONTRACTORS 2 (2015), http://assets.law360news.com/0679000/679249/Administrator’s%20Interpretation%20on%20Mis classification.pdf. (^31) Id. at 4. (^32) Id. at 2. (^33) Id. (^34) Id. (^35) See id. at 1. (^36) See Michael J. Lotito et al., How Broad is Broad? New DOL Guidance Determines Most Workers Are Employees , LITTLER (July 22, 2015), https://www.littler.com/publication- press/publication/how-broad-broad-new-dol-guidance-determines-most-workers-are-employees (“The bottom line is that businesses are facing a time of unprecedented uncertainty as the government continues to change the definition of both who is an employer and who is an employee.”). (^37) U.S. DEP’T OF LABOR, supra note 29. (^38) Id.
602 BAYLOR LAW REVIEW [Vol. 70: DOL failed to indicate what would take the place of the AI.^39 Later, however, the agency announced that it would return to its practice of issuing opinion letters.^40 These opinion letters, together with DOL regulations, pertinent provisions of the Field Operations Handbook, and DOL briefs, are meant to guide employers in their classification decisions.^41 Ideally, the confusion created by the economic realities test would be resolved within the political context and not the judicial system. For instance, Congress itself could make a legislative change to the FLSA. If Congressional action remains impossible, employers could presumably rely on an administrative effort by the DOL. For instance, the DOL could provide employers with a new set of guidelines. But in today’s polarized political environment, such changes seem unlikely. Instead, courts must rely on the FLSA classification test.^42 In this article, I offer a modification of the test used to make FLSA classification determinations. I do not discard the economic realities test, but instead choose to focus on one of the six factors examined in the test. I propose that the role of independent contractor be defined primarily by the presence or absence of entrepreneurial opportunity. To determine what constitutes entrepreneurship, I look to the academic discipline of entrepreneurship. Scholars in that field have studied, debated, and defined what exactly constitutes entrepreneurship. To determine the presence of entrepreneurial opportunity, I use the scholarly definitions of entrepreneurship to create a legal test aimed at improving the classification process. (^39) Id. (^40) U.S. DEP’T OF LABOR, 17 - 0914 - NAT, U.S. DEPARTMENT OF LABOR REINSTATES WAGE AND HOUR OPINION LETTERS (2017). (^41) See id. (^42) Of course, nothing suggested herein would affect misclassification and joint employment allegations brought under state wage and hour laws, federal or state tax laws, unemployment laws, workers’ compensation laws, or employee benefit laws.
604 BAYLOR LAW REVIEW [Vol. 70: The drafters of the FLSA also hoped that the statute would prevent unfair competition.^51 Backers of the FLSA hoped to level the playing field between reputable employers and those exploiting workers through the use of substandard wages.^52 Section 202(a)(3) of the FLSA declares that substandard labor conditions constitute “an unfair method of competition in commerce.”^53 As a House of Representatives report issued after the statute’s passage stated: No employer in any part of the United States in any industry affecting interstate commerce need fear that he will be required by law to observe wages... higher than those applicable to his competitors. No employee... need fear that the fair labor standards maintained by his employer will be jeopardized by oppressive labor standards maintained by those with whom his employer competes.^54 The FLSA has traditionally been read to extend coverage to most workers.^55 Broad coverage of the statute is needed to accomplish the statute’s purpose: This Act seeks to eliminate substandard labor conditions, including child labor, on a wide scale throughout the nation. The purpose is to raise living standards. This purpose will fail of realization unless the Act has sufficiently broad coverage to eliminate in large measure from interstate commerce the competitive advantage accruing from savings in costs based upon substandard labor conditions. Otherwise the Act will be ineffective, and (^51) U.S. DEP’T OF LABOR, Domestic Service Final Rule Frequently Asked Questions (FAQs) , https://www.dol.gov/whd/homecare/faq.htm (last visited March 18, 2018) (“The Fair Labor Standards Act (FLSA) was enacted in 1938 to provide minimum wage and overtime protections for workers, to prevent unfair competition among businesses based on subminimum wages, and to spread employment by requiring employers whose employees work excessive hours to compensate employees at one-and-one-half times the regular rate of pay for all hours worked over 40.”). (^52) Id. (^53) 29 U.S.C. § 202 (2012). (^54) H.R. REP. NO. 75 - 2182, at 6–7 (1938); Gilbreath v. Cutter Biological, Inc., 931 F.2d 1320, 1332 (9th Cir. 1991). (^55) Roland Elec. Co. v. Walling, 326 U.S. 657, 669–70 (1946), superseded by statute , Fair Labor Standards Amendments of 1949, Pub. L. No. 81-393, 63 Stat. 910 (1949), as recognized in Idaho Sheet Metal Works, Inc., v. Wirtz, 383 U.S. 190, 197–98 (1966).
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will penalize those who practice fair labor standards as against those who do not.^56 Similarly, the Department of Labor was originally created to “foster, promote, and develop the welfare of the wage earners of the United States.”^57 Congress also intended that the DOL improve conditions for workers and “advance their opportunities for profitable employment.”^58 The Secretary of Labor had the power to: (1) bring an action by or on behalf of any employee;^59 (2) impose civil penalties;^60 and (3) seek injunctive relief against unpaid wages due to the employee.^61 Congress likewise created the DOL’s Wage and Hour Division to “promote and achieve compliance with labor standards to protect and enhance the welfare of the Nation’s workforce.”^62
The drafters of the FLSA wanted to protect workers
The FLSA contains rules designed to limit the harsh working conditions faced by many workers. The Act was meant to: [R]aise substandard wages and to give additional compensation for overtime work as to those employees within its ambit, thereby helping to protect this nation ‘from the evils and dangers resulting from wages too low to buy the bare necessities of life and from long hours of work injurious to health.’^63 Some have argued that Congress intended a broad application of the ACT—to extend the act’s protections “to as many workers as possible.”^64 (^56) Id. (^57) 29 U.S.C. § 551 (2012). (^58) Id. (^59) Id. § 216(c). (^60) Id. § 216(e). (^61) Id. § 217. (^62) U.S. DEP’T OF LABOR, WAGE AND HOUR DIVISION MISSION STATEMENT, https://www.dol.gov/whd/about/mission/whdmiss.htm. (^63) United States v. Rosenwasser, 323 U.S. 360, 361 (1945) (quoting S. REP. NO. 75 - 884, at 4 (1937)). (^64) Keith Cunningham-Parmeter, From Amazon to Uber: Defining Employment in the Modern Economy , 96 B.U. L. REV. 1673, 1691 (2016).
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commerce; and (5) interferes with the orderly and fair marketing of goods in commerce.^73 In construing the FLSA, the Supreme Court noted “that broad coverage is essential to accomplish the goal of outlawing from interstate commerce goods produced under conditions that fall below minimum standards of decency.”^74 The Court has “consistently construed the Act ‘liberally to apply to the furthest reaches consistent with congressional direction.’”^75 Courts have construed the FLSA with the intent of maintaining “minimum standards of decency.”^76 Some have argued that the broad definition of employee found in the Act was intended to extend the Act’s protections “to as many workers as possible.”^77 To this end, the Supreme Court held that “the purposes of the Act require that it be applied even to those who would decline its protections.”^78 Thus, the FLSA even applies to those workers that would refuse its application.
COURTS USE A VARIETY OF WORKER CLASSIFICATION TESTS TO
DETERMINE WORKER STATUS
The FLSA’s employment-related definitions fail to satisfy the statute’s
purposes
In an ideal world, the statute would provide an adequate definition of those workers who fall within its ambit. Thus, before addressing classification tests, we first look to the language of the statute. A sufficiently detailed statutory definition would obviate the need for a judicially created test. Unfortunately, the employment-related definitions found within the FLSA are vague, circular, and interlocking. The definitions are certain to frustrate any party seeking to use the statute to distinguish between an employer and an independent contractor. Like many employment-related statutes, the FLSA’s definition of employee provides (^73) 29 U.S.C. § 202 (Supp. V 1939). (^74) Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 296 (1985). (^75) Id. (quoting Mitchell v. Lublin, McGaughy & Assocs., 358 U.S. 207, 211 (1959)). (^76) See id. (^77) Cunningham-Parmeter, supra note 64 , at 1691. (^78) Tony & Susan Alamo Found. , 471 U.S. at 302.
608 BAYLOR LAW REVIEW [Vol. 70: little guidance as to what an “employee” is. The relevant definitions are as follows:
- “Employer” includes any person acting directly or indirectly in the interest of an employer in relation to an employee....
- “Employee” includes any individual employed by an employer.
- “Employ” includes to suffer or permit to work.^79 Because of the lack of contractual or statutory certainty, courts have had to fill in the gaps. To make determinations of worker status, courts use different legal tests. “These tests derive from a variety of sources including the common law, governmental agency regulations, and federal and state statutes.”^80 This confusing assortment of tests differs across law and across context. For example, the National Labor Relations Act requires courts to use the common-law test to determine classification.^81 The Internal Revenue Service test examines twenty factors when making classification decisions relating to tax payments.^82 On the state level, every state making employment classifications for purposes of unemployment insurance coverage must use a test mandated by the state statute.^83 The two most prevalent classification tests are the common law control test and the economic realities test.
The right to control test
In most cases of misclassification not tied to the FLSA, courts look to the question of control, specifically the extent of control retained by the employer over the worker’s efforts.^84 Many states, as well as several federal agencies, have adopted their own versions of the control test.^85 The (^79 29) U.S.C. § 203 (2012 & Supp. IV 2017) (defining “Employer,” “Employee,” and “Employ”). (^80) John DeRoss Jr., Note, Misclassification of Employees as Independent Contractors in Indiana: A State Legislative Solution , 50 IND. L. REV. 673, 675 (2017). (^81) Id. at 677. (^82) Id. at 675. (^83) Id. (^84) Richard A. Bales & Christian Patrick Woo, The Uber Million Dollar Question: Are Uber Drivers Employees or Independent Contractors? , 68 MERCER L. REV. 461, 469 (2017). (^85) Id.
610 BAYLOR LAW REVIEW [Vol. 70: likely it is that the worker will be considered an employee.^90 Measured from the opposing viewpoint, if the employer exerts or retains less control, courts are more likely to determine that the employer has hired an independent contractor.^91 Predating the FLSA, the need to define worker status arose out of the need to define when an employer had vicarious liability for the tortious acts of its agents.^92 In fact, the determinative factors of the common law test derive from the Restatement (Second) of Agency, found beneath the subheading “Torts of Servants.”^93 Each factor is considered, although no authority exists to guide courts as to their relative importance. Ultimately, however, the common law test focuses on the issue of control—does the employer retain control over the right to control the work that is done and how the work is performed?^94 If the employer retains the right to control the work, regardless of the actual exercise of the right, then the worker will likely be classified as an employee.^95 Unfortunately, little guidance exists as to how the factors are to be weighed and balanced. Some factors may be present, while others are absent. Instead, the focus remains on the question of control. If the employer retains the right to control the work and its performance, the worker is likely to be classified as an employee.^96 The control test, although created for purposes of determining the scope of vicarious liability, has become the dominant worker classification test.^97 The control test factors have found their way into numerous federal and state statutes.^98 The factors are used to test employee status for coverage of the Employee Retirement (^90) Pivateau, supra note 89 , at 68. (^91) Id. at 68–69. (^92) Mitchell H. Rubinstein, Employees, Employers, and Quasi-Employers: An Analysis of Employees and Employers Who Operate in the Borderland Between an Employer-and-Employee Relationship , 14 U. PA. J. BUS. L. 605, 610 (2012). (^93) RESTATEMENT (SECOND) OF AGENCY § 220(2)(a)–(j) (AM. LAW INST. 1958 ). (^94) Jenna Amato Moran, Comment, Independent Contractor or Employee? Misclassification of Workers and Its Effect on the State , 28 BUFF. PUB. INT. L.J. 105, 109 (2009–2010). (^95) Id. (^96) Bales & Woo, supra note 84 , at 469 (citing Pivateau, supra note 89 , at 68). (^97) JEFFREY M. HIRSCH ET AL., UNDERSTANDING EMPLOYMENT LAW 8 (2d ed. 2013) (“[The] ‘control test’... became the leading test for distinguishing employees from independent contractors.”). (^98) Bales & Woo, supra note 84 , at 470–71.
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Income Security Act (ERISA),^99 the Federal Insurance Contribution Act (FICA),^100 the Federal Unemployment Tax Act (FUTA),^101 the Immigration and Naturalization Act,^102 the Occupational Safety and Health Act,^103 and Title VII of the Civil Rights Act of 1964.^104
The elements of the economic realities test
Instead of the control test, courts deciding cases brought pursuant to the FLSA utilize the economic realities test.^105 This test attempts to determine “whether as a matter of economic reality, the individuals are dependent upon the business to which they render service.”^106 Financial considerations are paramount in the use of the economic realities test. Worker status is determined not by the nature of the work, but on the financial realities that accompany the work.^107 The test should measure economic independence.^108 Some variation of the economic realities test is used to classify workers under the FLSA, the Equal Pay Act of 1963, the Family and Medical Leave Act of 1993, and the Employee Polygraph Protection Act of 1988.^109 The economic realities test is a creature of federal courts.^110 In Goldberg v. Whitaker House Cooperative , the Supreme Court opined that courts (^99) Bales & Woo, supra note 84 , at 470; see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323–24 (1992). (^100) Bales & Woo, supra note 84 , at 470; see also I.R.C. § 3121(d) (2012 & Supp. IV 2016). (^101) Bales & Woo, supra note 84 , at 470; see also I.R.C. § 3306(i) (2012 & Supp. IV 2016). (^102) Bales & Woo, supra note 84 , at 470; see also 8 U.S.C. §§ 1101 – 1537 (2012); 8 C.F.R. § 274a.1(f), (j) (2017). (^103) Bales & Woo, supra note 84 , at 470–71; see also 29 U.S.C. § 652 (2012). (^104) Bales & Woo, supra note 84 , at 471; see also 42 U.S.C. § 2000e(f) (2012). (^105) Grant E. Brown, Comment, An Uberdilemma: Employees and Independent Contractors in the Sharing Economy , 75 MD. L. REV. ENDNOTES 15, 26 (2016). (^106) Martin v. Selker Bros., 949 F.2d 1286, 1293 (3d Cir. 1991); Donovan v. Sureway Cleaners, 656 F.2d 1368, 1370 (9th Cir. 1981). (^107) Martin , 949 F2d at 1293; see also Donovan , 656 F.2d at 1370. (^108) See Mednick v. Albert Enters., 508 F.2d 297, 303 (5th Cir. 1975) (“An employer cannot saddle a worker with the status of independent contractor, thereby relieving itself of its duties under the F.L.S.A., by granting him some legal powers where the economic reality is that the worker is not and never has been independently in the business which the employer would have him operate.”). (^109) See MICHAEL S. HORNE ET AL., THE CONTINGENT WORKFORCE: BUSINESS AND LEGAL STRATEGIES § 2.07 (2017). (^110) See Barfield v. N.Y.C. Health & Hosps. Corp., 537 F.3d 132, 141 (2d Cir. 2008).
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liability on employers.”^118 The concept of “employee” for protection purposes was broad.^119 This approach focused on “control” but a different kind of control.^120 Instead of personal control, the economic realities test focused on the employer’s control over two things: capital and the specific project.^121 The factors examined in conjunction with the economic realities test derive from United States v. Silk , a case construing the Social Security Act.^122 As with the control test, none of the factors used in the economic realities test is dispositive.^123 Instead, a court should apply the test with an eye toward the “totality of the circumstances.”^124 In fact, courts are free to use factors other than those prescribed by the test.^125 “Since the test concerns the totality of the circumstances, any relevant evidence may be considered, and mechanical application of the test is to be avoided.”^126 The court applying the test should ultimately concern itself with “whether, as a matter of economic reality, the workers depend upon someone else’s business for the opportunity to render service or are in business for themselves.”^127 The economic realities test arose out of a labor case, as courts sought to bring more workers within the scope of the statute’s coverage.^128 In NLRB v. Hearst Publications , the Court looked to the legislative purposes of the National Labor Relations Act to create a classification standard.^129 The Court noted that in determining the status of a worker, the goal of the statute at issue should be considered.^130 In changing the status test, the (^118) Jane P. Kwak, Note, Employees Versus Independent Contractors: Why States Should Not Enact Statutes that Target the Construction Industry , 39 J. LEGIS. 295, 297 (2012–2013). (^119) United States v. Rosenwasser, 323 U.S. 360, 363 n.3 (1945) (The FLSA contains “the broadest definition [of employee] that has ever been included in any one act.”) (citation omitted). (^120) See Kwak, supra note 118 , at 297. (^121) Id. (^122) 331 U.S. 704, 713–14, 716 (1947). (^123) Brock v. Superior Care, Inc., 840 F.2d 1054, 1059 (2d Cir. 1988). (^124) Id. (^125) Id. (^126) Id. (^127) Id. (^128) See United States v. Rosenwasser, 323 U.S. 360, 362 (1945) (stating that “a broader or more comprehensive coverage of employees... would be difficult to frame”). (^129) 322 U.S. 111, 128–29 (1944). (^130) See id. at 129.
614 BAYLOR LAW REVIEW [Vol. 70: Supreme Court expanded the coverage of the NLRA, as more workers fell within its ambit.^131 In Hearst Publications , the Supreme Court found that the men who distributed Los Angeles newspapers (called “newsboys” despite their age) were employees within the coverage of the NLRA.^132 The Supreme Court expressed its displeasure with the agency test, in large part because its common law roots allowed for different interpretations depending on state law.^133 Because the Court considered labor issues to be national, “the Court rejected the possibility that the states’ common law principles could be productively distilled into a workable national standard.”^134 It believed that the control test might produce results that did not meet the comprehensive labor reform that Congress was attempting to achieve.^135 Two decades later, the Wage-Hour Administrator of the Department of Labor utilized the “economic realities test” to measure status for purposes of coverage under the FLSA.^136 The court in Brock v. Superior Care, Inc. stated that the dominant issue was not control but “whether, as a matter of economic reality, the workers depend upon someone else’s business for the opportunity to render service or are in business for themselves.”^137 The economic realities test was incorporated into the Family and Medical Leave Act (FMLA).^138 In 2015, the DOL produced its AI noting that an employer’s lack of control over a worker should not be given undue weight in determining classification.^139 Although the AI has been withdrawn, it provides a worthwhile primer on the economic realities test. For purposes of the FLSA, the DOL noted that courts should focus on whether the worker is (^131) See id. at 125. (^132) See id. at 113–19 (discussing the newsboys’ work arrangement); id. at 131–32 (upholding the NLRB’s determination that they were employees). (^133) Id. at 123 (“Both the terms and the purposes of the statute, as well as the legislative history, show that Congress had in mind no such patchwork plan for securing freedom of employees’ organization and of collective bargaining.”). (^134) Id. at 125–26 (“Congress no more intended to import this mass of technicality as a controlling ‘standard’ for uniform national application than to refer decision of the question outright to the local law.”); Pivateau, supra note 89 , at 81. (^135) Hearst , 322 U.S. at 122–23. (^136) 29 U.S.C. §§ 201 – 219 (2012 & Supp. IV 2016); U.S. Dep’t of Labor, Wage & Hour & Pub. Cont. Divs., Opinion Letter (June 25, 1968). (^137) 840 F.2d 1054, 1059 (2d Cir. 1988). (^138) 29 C.F.R. § 825.105 (2017). (^139) U.S. DEP’T OF LABOR, supra note 30 , at 4.
