Last week, a U.S. District Court judge in Chicago issued a default judgment against Skokie Maid and Cleaning Service (“Skokie Maid”) for failing to answer a complaint filed by the U.S. Department of Labor (“DOL”). The DOL, alleged that Skokie Maid misclassified 75 current and former cleaning employees as independent contractors, resulting in a failure to pay them for all hours worked, a failure to pay overtime in excess of 40 hours per week and a failure to maintain proper payroll records. The judgment requires Skokie Maid to pay $250,946.72 in back wages, plus another $250,946.72 in liquidated damages, plus $70,125 in civil penalties due to the willful nature of the violations. Solis v. Skokie Maid and Cleaning Service, d/b/a Skokie Maid, No. 11- cv-08688, N.D. Ill 2012.
As summarized above, the misclassification of workers as independent contractors often results in substantial judgments and penalties being levied against employers. Although there is no single test to determine whether an individual is an employee or an independent contractor for purposes of the Fair Labor Standards Act, the courts often weigh and consider: (1) the extent to which the services provided to the business are an integral part of the company’s business, (2) the permanency of the relationship, (3) the amount of investment that the independent contractor has in his/her own facilities and equipment, (4) the degree of behavioral and financial control that the company exerts over the contractor, (5) the contractor’s ability to earn a profit or a loss, (6) the degree to which the contractor makes his/her services available to the open market and (7) the degree of independence that the contractor has in operating his/her own business.
All employers should review their independent contractor relationships to ensure compliance. In our experience, when the above factors are applied to most independent contractor relationships, very few examinations result in truly inconclusive determinations. By evaluating each factor, companies can evaluate the business risks associated with an improper classification. Should you have any questions about this very important issue, please consult your relationship attorney.