A federal judge in Texas has found that gate attendants who logged traffic in and out of oil and gas field drilling sites were properly designated as independent contractors. The ruling ended a three-year-long dispute in which the plaintiffs claimed that the gate attendants should have been designated as employees of the company and thus paid $6 million worth of overtime pursuant to the FLSA. The case, Gate Guard Services L.P. v. Solis, is a good indication of the types of factors that a court will consider and use to determine if someone is an independent contractor when they are working in the oil and gas fields.
The court applied the multifactor economic reality test which focuses on whether the workers economically depended on the alleged employer or instead were in business for themselves. The primary factors that the court relied upon were:
- Degree of control: Assignments were offered on a take-it or leave-it basis and gate attendants received no training; were not subject to day-to-day supervision, performance evaluations, or discipline; were free to engage in personal activities when not signing people in and out; and could hire relief workers to perform their tasks.
The court rejected arguments that the company exerted control by requiring safety gear and uniforms and prohibiting littering, firearms, or alcohol use, noting that those conditions existed to comply with rules of third parties, such as the government, oil and gas companies, and landowners.
- Opportunity for loss or profit: Gate attendants could negotiate their daily rate with the company, take jobs with other entities during periods of time off, and perform other work while at the site, including on-line retail sales.
- Permanency of the relationship: Gate attendants were hired on a project-by-project basis, generally with one- to nine-month breaks between projects.
The court found that the relative investments of the worker and the alleged employer were a neutral factor and the lack of special skills required for the job weighed in favor of employee status. Other factors considered include the existence of an independent contractor agreement; industry custom; and the U.S. Army Corps of Engineers' classification as independent contractors of gate attendants who worked under similar conditions.
Since 2010, there has been increased attention on worker misclassification from both the Department of Labor (DOL) and the Internal Revenue Service (IRS), which estimate that misclassification of employees as independent contractors results in $3.4 billion of lost revenue to the U.S. Treasury each year. The DOL and 14 states have agreed to share information and coordinate enforcement efforts in misclassification cases, and the IRS recently issued Information Letter 2012-0069, recognizing that an individual who performs separate roles on separate projects for the same business could be an employee in one project and an independent contractor in another.
This increased focus on employee and independent contractor classification underscores the importance of correct worker classification. As illustrated by the Gate Guard Services decision, proper classification of a worker is highly fact-dependent and mistakes can be costly.
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