FLSA Provisions Provide Guidance of Construction Employee Classification on Jobsites

Contractors commonly exercise some degree of control over workers that they may not actually employ. For example, a contractor’s employees may work hand-in-hand with workers who are employed by other contractors or a contractor’s employees may direct and monitor the work being performed by workers who are employed by a subcontractor.

This common state of affairs frequently gives rise to one of the most intractable questions in all of employment law: Which workers on the construction site are considered my company’s “employees” for the purposes of the Fair Labor Standards Act (FLSA)? The answer to this question is important because it determines which workers can attempt to hold a contractor liable for alleged wage and hour violations. Therefore, construction executives should familiarize themselves with the factors courts take into consideration when determining whether a particular group of workers could be considered “employees” of their company for FLSA purposes.

The FLSA’s minimum wage and overtime provisions apply to “employees.” Therefore, if a worker is an “employee” then their “employer” must comply with the FLSA. Unfortunately, the FLSA does not meaningfully define the term “employee.”

It is important to understand that whether a worker is an “employee” for FLSA purposes is a question of statutory interpretation rather than contractual interpretation. Contractors often mistakenly believe that a worker automatically qualifies as an independent contractor if they sign an independent contractor agreement. But that is not the case. A worker may qualify as a company’s “employee” for FLSA purposes even if they have signed a contract that purports to classify them as an independent contractor and even if they are not on that company’s payroll.

Typically, when determining a worker’s status as an “employee” or “independent contractor," federal agencies and federal courts will follow common law principles of agency with no single factor being controlling and may take economic reality factors into consideration. But it is worth noting that the amount of weight that should be given to economic reality considerations is a hotly disputed issue.

For example, the Department of Labor Wage and Hour Division (DOL WHD) has changed and/or qualified its stance on the issue multiple times within the last several years.

• In 2015, the DOL WHD issued guidance stating its intention to significantly increase the importance of economic reality factors in determining whether a worker is considered an employee for FLSA purposes.
• In 2017, the DOL WHD rescinded AI No. 2015-1 and did not issue any new guidance in place of the rescinded interpretation.
• In 2020, the DOL WHD issued proposed regulations that, among other things, would require courts to place particular emphasis on the following factors when determining whether a worker as an “employee” for FLSA purposes: the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss.
• In 2021, the DOL WHD withdrew the proposed regulations it had issued in 2020 and reaffirmed its preference for the totality-of-the-circumstances standard where no single factor is controlling.

Therefore, construction executives should evaluate the following factors when trying to determine if a group of workers could be considered “employees” of their company for FLSA purposes:

1. The extent to which the services rendered are an integral part of the principal's business;
2. The permanency of the relationship;
3. The amount of the alleged contractor's investment in facilities and equipment;
4. The nature and degree of control by the principal;
5. The alleged contractor's opportunities for profit and loss;
6. The amount of initiative, judgment or foresight in open market competition with others required for the success of the claimed independent contractor; and
7. The degree of independent business organization and operation.

If a particular group of employees appears to be at risk of being misclassified then the construction executive should contact legal counsel to determine the best method of remedying the situation and/or for determining how to ensure that the relevant subcontractor is complying with the FLSA.