TexasBuilders.org
23
Legal Opinion
Each factor is discussed in detail in the
guidance using case law and examples,
several of which pertain to the construction
industry. Examples from the construction
industry include the following:
(1) Is the work an integral part of the
employer’s business?
Example:
For a construction company that
frames residential homes, carpenters are
integral to the employer’s business because
the company is in business to frame homes,
and carpentry is an integral part of providing
that service.
In contrast, the same construction
company may contract with a software
developer to create software that, among
other things, assists the company in
tracking its bids, scheduling projects and
crews, and tracking material orders. The
software developer is performing work
that is not integral to the construction
company’s business, which is indicative of
an independent contractor.
A footnote to this example provides: The
addition or alteration of any of the facts
in any of the examples could change the
resulting analysis. Additionally, while the
examples help illustrate the discussion of
several common factors of the economic
realities test, no one factor is determinative
of whether a worker is an employee or
independent contractor.
Notably, this example references a
construction company that frames
residential homes. Arguably, a company
that builds homes is distinguishable from
a company that frames homes. It is hard
to argue that carpenters are not integral
to a framing company. Consequently, this
example does not imply that a framing
subcontractor is integral to the home
builder’s business. Framing is a necessary
component to constructing a house, but it
could be argued that it is not integral to
the builder’s business.
(2) Does the work performed require
special skill and initiative?
Example:
A highly skilled carpenter provides
carpentry services for a construction firm;
however, such skills are not exercised in
an independent manner. For example, the
carpenter does not make any independent
judgments at the job site beyond the work that
he is doing for that job; he does not determine
the sequence of work, order additional
materials, or think about bidding the next job,
but rather is told what work to perform where.
In this scenario, the carpenter, although
highly-skilled
technically,
is
not
demonstrating the skill and initiative
of an independent contractor (such as
managerial and business skills). He is
simply providing his skilled labor.
By contrast, a highly skilled carpenter
who provides a specialized service for a
variety of area construction companies,
for
example,
custom,
handcrafted
cabinets that are made-to-order, may be
demonstrating the skill and initiative of an
independent contractor, if the carpenter
markets his services, determines when
to order materials and the quantity of
materials to order, and determines which
orders to fill.
These examples reinforce the well-
known fact that the DOL Wage and Hour
Division (WHD) has concerns with the
construction industry. The July 15, 2015
WHD blog post: Employee or Independent
Contractor? highlights an investigation
in Utah and Arizona that secured wages
and benefits for more than 1,000 drywall
workers who were wrongly classified.
According to a press release issued by DOL
in April 2015, consent judgments with 16
defendants in Utah and Arizona yielding
$700,000 in back wages, damages, penalties
and other guarantees put an end to an effort
by the defendants — operating collectively
as CSG Workforce Partners, Universal
Contracting, LLC and Arizona Tract/
Arizona CLA — to claim that more than
1,000 of their workers were not employees.
The defendants required the construction
workers to become member/owners of
limited liability companies, stripping them
of federal and state protections that come
with employee status. These construction
workers were building houses in Utah and
Arizona as employees one day and then
the next day were performing the same
work on the same job sites for the same
companies but without the protection of
federal and state wage and safety laws.
The companies, in turn, avoided paying
hundreds of thousands of dollars in
payroll taxes.
The investigation began in southern
Utah and then moved to Arizona after
the passage of state legislation in Utah
that required limited liability companies
(LLCs) to provide workers' compensation
and unemployment insurance to their
members. To avoid legal jeopardy in Utah,
the defendants moved their operations
south to Arizona. Without further
investigation, it is not clear whether the
defendants were home builders or drywall
contractors, or both.
As we know from the guidance document,
however, under the FLSA the focus is not
on the worker’s technical skill, but his
business skills. Also, one of the factors
relates to the permanency or indefiniteness
in the worker’s relationship with the
employer. Focusing on worker supply and
demand does not necessarily suggest an
independent contractor relationship.
