In a case that highlights the growing risks associated with classifying workers as "independent contractors," a federal court in California has ordered a house cleaning service to pay more that $4.5 million in back pay and liquidated damages for failing to pay minimum wages and overtime pay to nearly 400 house cleaners. See Chao v. Southern California Maid Services & Carpet Cleaning, Inc., No. CV-06-3903 (C.D. Cal. 2007). The decision resolves a lawsuit filed by the U.S. Department of Labor alleging that the workers were misclassified as "independent contractors" in violation of the federal Fair Labor Standards Act ("FLSA").

The employer had defended against the suit by claiming that the cleaners were "independent contractors" and thus not covered by the FLSA, which only protects "employees." However, merely classifying a group of workers as independent contractors is not sufficient to avoid liability under the FLSA. Instead, courts look to a variety of factors, including how much control and supervision the employer exercises, in order to determine whether a particular worker is actually an "employee" entitled to overtime pay and minimum wages under the FLSA.

The court in this case found that the employer had misclassified the cleaners as independent contractors, resulting in minimum wage and overtime violations. Further, the employer failed to keep accurate records of the hours worked by the employees, which constituted an additional violation. The court based its decision in part on the employer's failure to respond to the Department of Labor's request for an admission regarding the status of its cleaners as "employees." As the court explained, by not responding to the request, the employer “admitted that they were continually aware of their FLSA violations over the relevant time period."

To avoid liability under the FLSA for misclassifying workers, employers can take a number of steps, ranging from relatively minor modifications to the nature of the working relationship to the use of carefully drawn contracts for its independent contractors. As this case demonstrates, however, the failure to take such steps can be costly, particularly given the continued rise in wage and hour litigation. In 2006, for instance, the Department of Labor collected nearly $172 million in back wages for over 206,000 workers, an increase of 3.6% in the amount collected the year before. Meanwhile, the number of private litigants bringing suits and collective actions against employers also continues to rise, often resulting in multimillion-dollar jury verdicts or settlements.