Introduction
The Fair Labor Standards Act (FLSA) is among the key pieces of legislation for businesses operating in the United States. It serves to establish conditions and requirements regarding a minimum wage, working hours, child labor, overtime compensation, and recordkeeping for private companies and government agencies. One of the key provisions of the FLSA is the workers’ eligibility for overtime pay. According to the FLSA (2016), employees who are working over 40 hours per week are required to receive compensation for each additional hour to the amount of 150% of their normal hourly wage.
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However, some workers are exempt from overtime pay. This category includes independent contractors (FLSA, 2016). Thus, instances of misclassification are among the most common cases under the FLSA law. Intentionally or unintentionally, the companies might misclassify some of the workers as independent contractors, making them exempt from overtime pay. One of such cases is the 2016 class-action lawsuit that was filed against Cenergy International Services LLC and Shell Oil Company (Reformado, 2016). The present paper will seek to outline and analyze the case by applying the FLSA provisions to it.
On May 12th, 2016, a complaint was filed by Steven Derrick to the Houston Division of the Southern District of Texas for an alleged violation of the FLSA (Reformado, 2016). On behalf of other workers in similar positions, Derrick argued that the staffing company misclassified him as an independent contractor, which exempted the workers from weekly guaranteed salary and overtime pay. The company provided hourly and day-rate pay for the workers, although all of them worked more than 40 hours per week for several months (Lore, 2017). Derrick worked as a Health, Safety, and Environment (HSE) Technician, whereas other plaintiffs worked in similar positions.
According to the definition provided by the FLSA (2016), the term “employee” means “any individual employed by an employer,” except for some lines of business, such as agriculture, volunteering, and non-profit services (p. 2-3). Independent contractors, on the other hand, work independently; they are exempt from most labor laws and payroll taxation schemes (Deknatel & Hoff-Downing, 2015). By law, independent contractors are also distinguished from workers by the general lack of managerial oversight. According to Deknatel & Hoff-Downing (2015), with regards to independent contractors, the employer can only control the outcome of the work, not the processes performed by the contractor to achieve it. Normally, an HSE Technician working in the oil and natural gas industry would not be classified as an independent contractor, as he or she is subject to oversight and is responsible for work processes. Thus, the present case is an example of misclassification. However, as there was no evidence of an intentional violation that was provided, this case was joined with a Pennsylvania case against the same employer and resulted in a dismissal later in 2017.
Conclusion
Overall, the present case illustrates the problem of misclassification under the FLSA and other legislation regulating labor and working conditions. The obvious solution to the problem that would help companies to prevent lawsuits under the FLSA is to avoid misclassification. Nevertheless, as noted by Pinsof (2016), today’s business environment is rather complex, meaning that the original definition used to distinguish between workers and contractors might not always be applicable. One way for companies to prevent misclassification is to use the ABC test, which is currently used in most states as a model of worker classification for the government (Pinsof, 2016). Using the ABC test while classifying positions could help companies to avoid mistakes and reduce the risk of lawsuits.
References
Deknatel, A., & Hoff-Downing, L. (2015). ABC on the books and in the Courts: An analysis of recent independent contractor and misclassification statutes. University of Pennsylvania Journal of Law and Social Change, 18(1), 53-104.
The Fair Labor Standards Act (FLSA). (2016). Washington, DC: The U.S. Department of Labor.
Lore, M. (2017). Cenergy International Services sued for unpaid back wages. Web.
Pinsof, J. (2016). A new take on an old problem: Employee misclassification in the modern gig-economy. Michigan Telecommunications and Technology Law Review, 22(2), 341-373.
Reformado, W. (2016). Cenergy International Services LLC, Shell Oil Co. accused of not paying overtime.SE Texas Record. Web.