Different “Economic Realities” Tests Exist for Determining Independent Contractor Status

As we previously noted in discussing the Department of Labor’s Proposed Rule on determining independent contractor v. employee status, there are many versions of the test across agencies and courts, leading to much confusion for employers – and the latest demonstration of this comes out of the U.S. Court of Appeals for the Sixth Circuit.

In Gilbo v. Agment, LLC, the Sixth Circuit articulated a broad “economic realities” test under the Fair Labor Standards Act, consisting of six factors: 1) the permanency of the relationship between the parties; 2) the degree of skill required for the rendering of the services; 3) the worker’s investment in equipment or materials for the task; 4) the worker’s opportunity for profit or loss, depending upon his skill; 5) the degree of the alleged employer’s right to control the manner in which the work is performed; and 6) whether the service rendered is an integral part of the alleged employer’s business. The Sixth Circuit then applied these factors to find that exotic dancers were, in fact, employees (e.g. worked exclusively for the employer, little skill required, little investment, little control over profit/loss, significant control by employer, part of employer’s business).

Notably, the Sixth Circuit’s (six-factor) “economic realities” test differs from the DOL’s proposed (two core factors and three additional factors) “economic realities” test under the FLSA. Again, employers must be cognizant of what are the various tests, and which test applies – which will depend on the law in question and the jurisdiction.