After an investigation by the United States Department of Labor (“USDOL”), on September 21, 2011, a U.S. District Court in Ohio ruled that Cascom, Inc. and its president Julia J. Gress (collectively “Cascom”) violated the Fair Labor Standards Act (“FLSA”) by misclassifying its employees as independent contractors. The Court found that Cascom’s installers were “employees” entitled to overtime pay for work in excess of 40 hours per week. In an upcoming hearing on damages, the USDOL is seeking to recover in excess of $800,000 in back wages and in excess of $800,000 in liquidated damages. (Secretary of Labor v. Cascom, Inc. and Julia J. Gress, Case No. 3:09-cv-00257 (S.D. OH September 21, 2011)).
The case arose when Cascom contracted with Time-Warner Cable to install cable in Southwestern Ohio and hired cable installers to do the installations. The USDOL alleged that the work relationship between Cascom and the cable installers was an employer-employee relationship. Cascom argued that the installers were not employees but independent contractors with whom they had contracted to perform work. After noting that the FLSA defines “employee” in broad terms and that the test for employment under the FLSA is one of “economic reality,” the Court identified several factors used to distinguish an employment relationship from an independent contractor relationship. Although no one factor is determinative, the Court’s review of the various factors and decisions should be helpful to many employers.
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In its defense, Cascom attempted to assert that it acted in good faith and in accordance with industry standards. However, the Court disagreed and noted that to establish a “good faith” defense, Cascom needed to take active steps to understand and comply with the FLSA. Importantly, as for complying with industry standards, the Court stated that conformity with industry-wide practices fails to demonstrate good faith under the FLSA. Here, like in other areas of the law, the “everybody-else-is-doing-it-defense” did not mitigate the potential $1.6 million dollars in recoverable damages.