The 6th Circuit Weighs in on Independent Contractor Misclassification in the Changing Economy - Articles

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Posted by: Bradford Harvey & Jessica Malloy-Thorpe on Apr 12, 2019

In Acosta v. Off Duty Police Servs., Inc., 915 F.3d 1050, 1052 (6th Cir. 2019), an independent contractor misclassification case, the U.S. Court of Appeals for the Sixth Circuit (covering Tennessee, Kentucky, Ohio, and Michigan) recognized that “[t]he way we work in America is changing,” as “[t]he relationships between companies and their workers are more fluid and varied than in decades past.”  Nevertheless, the Sixth Circuit in Acosta applied traditional legal protections to a modern employment relationship. 

The defendant, Off Duty Police Services, Inc. (“ODPS”), provides private security and traffic control services.  Most of its workers are sworn law-enforcement officers moonlighting while off duty, though some of its workers have no background in law enforcement.  Both types of workers perform essentially the same job, though the moonlighting officers are paid a higher hourly wage.  The company classified all of its workers as independent contractors and therefore did not pay overtime wages. 

The U.S. Department of Labor (“DOL”) sued ODPS under the Fair Labor Standards Act alleging that all of the workers are entitled to overtime.  The District Court found the unsworn workers were employees but that the moonlighting officers were independent contractors “because they simply were not economically dependent on ODPS and instead used ODPS to supplement their incomes.”  Id. at 1054.  Both ODPS and the DOL appealed the decision to the Sixth Circuit. 

The Sixth Circuit applied the “economic reality” test, considering the six factors discussed below in determining whether the workers were independent contractors or employees, while noting that each factor “must be considered with an eye toward the ultimate question – the worker’s economic dependence or independence from the alleged employer.”  Id. at 1055.

(1)       Whether the service rendered is an integral part of the alleged employer’s business – The Sixth Circuit found that this factor “cuts heavily in favor of finding an employment relationship between ODPS and all its workers” because both types of workers were without question integral to ODPS’s business, as the company “could not function without the services its workers provide.”  Id.

(2)       The degree of skill required for the rendering of the services – The Court found that this factor also favored employment status for all of ODPS’s workers.  It explained that the “skills required to work for ODPS are far more limited than those of a typical independent contractor,” as the tasks “required little skill, initiative, or training.”  Specifically, the workers spent most of their time sitting in a car with lights flashing, with some time standing outside or flagging traffic for the traffic control work, and patrolling property and checking to make sure buildings are safe and locked for security work.  Id. at 1055-56.  The Court rejected the company’s arguments that becoming a licensed police officer requires extensive skill and training because these skills were not required to perform the services that ODPS’s workers rendered.  Id.

(3)       The worker’s investment in equipment or materials for the task – This factor also supported a finding of employee status for both types of ODPS’s workers, as the company “periodically supplied workers with basic equipment necessary for the job, including stop-and-go signs, reflective jackets, and badge-shaped patches with the ODPS logo.”  Id. at 1056.  For the off-duty workers, the remaining items needed to perform the job (a police uniform and cruiser) “required little or no capital investment because the officers already had the items through their police work.”  Id. at 1056-57. For the non-law enforcement workers, the Court noted that obtaining a police vehicle required an investment of $3,000 to $5,000, but that the workers could also use the vehicles for personal purposes and that this amount “pales in comparison to the amount ODPS spent running its business per year.”  Id. 

(4)       The permanency of the relationship between the parties – The Sixth Circuit found that this factor supported employee status for both types of workers, as workers might accept jobs intermittently, but they worked consistently for ODPS throughout the year, and often for years or even decades at a time.  The Sixth Circuit explained that the District Court had improperly conflated economic dependence with the permanency of the relationship when it found that this factor supported independent contractor status for the moonlighting officers.  The Sixth Circuit explained that permanency of the relationship is a separate factor, and economic dependence should be considered for all six factors.  Further, the Court explained that a worker’s source(s) of income are not determinative for economic dependence, because an “income-based test would deny [the] economic reality” that “[m]any workers in the modern economy, including employees and independent contractors alike, must routinely seek out more than one source of income to make ends meet.”  Id. at 1058.  Additionally, such a test could “lead to classification of the same worker as an independent contractor during the periods in which she had more than one source of income but then as an employee during the (often brief) periods in between.”  Id.

(5)       The worker’s opportunity for profit or loss, depending on his skill – This factor weighed in favor of employee status for both types of workers, because the “workers earned set wages to perform low-skilled jobs for fixed periods of time.”  Id. at 1059.  The Sixth Circuit rejected the company’s argument that this factor favored independent contractor status because the workers could accept or reject work, thereby controlling their opportunities for profit or loss.  The Court explained that “[w]hile the decision to accept or reject work is a type of managerial action, the relevant question is whether workers could increase profits through managerial skill,” and ODPS’s workers were compensated by the hour regardless of what skills they exercised.  Id.  The Court clarified that “[d]ecreased pay from working fewer hours does not qualify as a loss.”  Id.

(6)       The degree of the alleged employer’s right to control the manner in which the work is performed – The Sixth Circuit explained that the District Court correctly found that this factor supported employee status for the non-law enforcement workers, because the company set the rate they were paid; told them where to go for a job, when to arrive, and whom they should contact upon arrival; supervised them periodically on job sites; and enforced dress and grooming policies.  For the moonlighting officers, the Sixth Circuit found the District Court incorrectly found that this factor supported independent contractor status.  The Court explained that the control factor “does not break cleanly in favor of employee or independent contractor status for ODPS’s sworn officers,” because, for at least some of the workers, the company never imposed any supervision or discipline.  Thus, the Sixth Circuit found that the control factor weighed in favor of employee status for the non-law enforcement workers but did not favor either employee or independent contractor status for the moonlighting officers. 

In sum, the 6th Circuit held five of the six factors supported finding an employment relationship for both types of workers and the last factor supported employee status for non-law enforcement workers and was neutral for moonlighting officers.  The Court found, after “[t]aking all these factors into consideration with an eye on the ultimate question of economic dependence, ODPS’s workers [of both types] were employees entitled to overtime wages under the FLSA.” 

The main takeaway from this case is the importance of re-evaluating the classification of workers as independent contractors, even if that classification has been in place for decades.  This is particularly important given the changing nature of the employment relationship, as more jobs become part of the gig economy.  Courts in California, Illinois, and New Jersey, among other states, have been moving toward even stricter tests for companies to prove their workers are independent contractors.[1]  Within the Sixth Circuit, if an employer finds that the six factors of the “economic reality” test do not strongly support independent contractor status, it risks huge penalties under the FLSA by keeping workers classified as independent contractors instead of employees.     


[1] See Dynamex Operations West, Inc. v. Superior Court, 416 P.3d 1 (Cal. 2018), which held that the “ABC” test applied to determine whether drivers were employees or independent contractors under California Wage Orders.  Under the “ABC” test, which Tennessee also uses, although perhaps not as strictly, “a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”  Id. at 916-17.


— Bradford Harvey is a member of Miller & Martin at its Chattanooga office. Harvey received his law degree, Order of the Coif, from Vanderbilt University School of Law in 1995. He concentrates his practice in labor and employment law and class and collective action defense. He may be reached at 423-785-8210 or brad.harvey@millermartin.com.

— Jessica Malloy-Thorpe is an associate of Miller & Martin at its Chattanooga office. She focuses her area of practice on business litigation, with an emphasis on labor and employment litigation matters. Malloy-Thorpe received her law degree from Georgetown University Law Center in 2013. She may be reached at 423-785-8356 or jessica.malloy-thorpe@millermartin.com.