The United States Department of Labor issued a press release announcing its victory in a suit filed to recover overtime wages for over 250 installers. The installers were employed by Cascom, Inc., which provides residential cable television, Internet and telephone installation services for Time Warner in the Dayton, Ohio area.
As in the Cascom case, a common practice among employers is to classify employees as independent contractors to avoid paying minimum wage, overtime compensation or other employment benefits. In the Cascom matter, the Department of Labor conducted an investigation of the company and based on interviews and company records determined that the employer failed to pay overtime wages and to keep pay records. Problems regarding misclassification not only arise under the Fair Labor Standards Act (“FLSA”), but under Internal Revenue Service (“IRS”) rules for Medicare and Social Security Taxes.
The IRS’ general rule is that a person is an employee if s/he performs services that the employer controls what will be done and how it will be done. A person is an independent contractor if the employer has the right to control or direct only the result of the work, and not what will be done and how it will be done. Under the FLSA, there are several factors that are considered in determining whether a person is an independent contractor versus an employee, including: the extent to which the worker’s services are an integral part of the employer’s business; the permanency of the relationship; the amount of the worker’s investment in facilities and equipment; the nature and degree of control by the principal; the worker’s opportunities for profit and loss; and, the level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise.
If a person is deemed an employee under the above guidelines, the employer is required to pay minimum wage and overtime compensation. Minimum wage for 2011 under federal law is $7.25 per hour, and in Ohio minimum wage increases to $7.40 per hour for employers who gross more than $271,000. Overtime compensation is required to be paid at one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek. Moreover, an employer cannot meet the overtime pay requirement by giving the employee compensatory time off, with limited exceptions that apply only to certain state and local government employees. Overtime pay must be paid in the pay period in which it was earned, and cannot be waived by agreement of the employee and employer.
The Cascom case was initially filed in 2009, and on September 29, 2011 a federal district court judge held that the employer violated federal labor laws when it misclassified employees as independent contractors and, consequently, did not compensate them for overtime work as required under the FLSA. The Department of Labor is seeking more than $1.6 million in unpaid overtime and damages, half of that from back wages and an equal amount in liquidated damages. A damages hearing will be held on November 22, 2011.