By: David Blanchard, Blanchard & Walker PLLC, Ann Arbor, MI
The Sixth Circuit federal appeals court has spoken, and “independent contractors” or other workers who may be deprived of overtime pay under the Fair Labor Standards Act (FLSA) should be pleased to hear the news. A recent trend of decisions in the federal appeals court for the Sixth Circuit (covering Michigan, Ohio, Kentucky and Tennessee) affirms a clear right to jury trial, and against judicial rulings to dismiss, to decide overtime compensation claims. Under the FLSA, non-exempt employees are entitled to overtime pay at “time and a half” for all hours worked in a week.[i] The FLSA overtime law applies regardless of contract provisions or other agreements the employer has tried to impose (including “independent contractor” labels the employer might insist upon as a condition of employment). Recent published cases in the Sixth Circuit lend encouragement for workers seeking overtime pay and a note of caution for trial judges who may be inclined to issue summary dismissals.
Exhibit A: Independent Contractors
For one, the Sixth Circuit has been cracking down on the labeling of some workers as “independent contractors” or otherwise treating workers as “non-employees” who are not covered by the FLSA (such as volunteers or interns). For instance, in Keller v. Miri Microsystems LLC,[ii] the plaintiff satellite-internet installer who worked nineteen-hour days, six days a week with no overtime compensation, was coined an “independent contractor” by the defendant company. The lower court dismissed the case holding that the installer was an “independent contractor”, but the Sixth Circuit reversed, finding genuine questions of fact that required a jury trial to properly determine the status. Under the appeals court’s reasoning, to determine whether a worker is an employee or an “independent contractor”, courts assess the “economic reality” surrounding the worker’s job, drawing upon six factors to do so: 1) the permanency of the relationship between the parties; 2) the degree of skill required for the rendering of the services; 3) the worker’s investment in equipment or materials for the task; 4) the worker’s opportunity for profit or loss, depending upon his skill; 5) the degree of the alleged employer’s right to control the manner in which work is performed; and 6) whether the service rendered is an integral part of the alleged employer’s business.[iii] Typically, it is first the court’s job to decide if all the factors weigh in favor of classification as an independent contractor; if a genuine issue of material fact regarding employment status exists, then summary judgment is inappropriate.
The court in Miri not only held that there were indeed genuine factual issues, but also that these issues were to be resolved by a jury. Defendant Miri claimed in part that because it paid its installation technicians by the job (not by the hour); it didn’t withhold federal payroll taxes or provide the plaintiff with benefits; it had no contract or exclusivity agreement which prevented plaintiff from installing on behalf of other companies; it selected installers for job assignments based on location and availability and not their particular skill level; it allowed plaintiff to decide the location of his work and the number of jobs he took each day; it invested a more significant amount of money in the business; and it allowed Keller to hire assistants to work on his behalf, that plaintiff satisfied the independent contractor test. However, Plaintiff provided evidence that he worked for Miri for almost 20 months and treated the company as his permanent employer, never turning down an assignment; he needed certification, for which training was provided by defendant; that he invested some money in the work he performed; and he could hardly increase his profitability as there were only a limited number of jobs that could be completed within a day, all of which the appeals court found to be important in remanding the case to a jury.
Exhibit B: Outside Salespeople
Similarly, the recent trend in the Sixth Circuit also suggests that employers will face an uphill battle in front of a jury when they deny overtime pay based on overbroad or abusive application of the exemptions under the FLSA. In Killion v. KeHE Distributors, LLC,[iv] the appeals court also reversed the trial court judge’s dismissal on summary judgment, holding that categorization of “sales representatives” as “outside sales employees” will not stand where a jury could find that employees do not have the primary duty of making sales. Although the title of “sales representative” may suggest that these employees are exempt, the FLSA requires a court to take into account all of the factors in a particular case and examine the true nature of the employees’ work in its entirety. The Killion court ruled that a reasonable jury could find that plaintiff employees had the primary duties of stocking shelves and managing inventory, not making sales. Given that around 70% of employees’ compensation was based on stocking and cleaning shelves, along with the fact that their promotional work for KeHE was done in furtherance of the sales of account managers and not plaintiffs’ own sales, the court found genuine issues of material fact existed that were appropriate for a jury to decide.
Exhibit C: “Shift Supervisors”
The court’s refusal to grant summary judgment in false categorization cases is reiterated in Bacon v. Eaton.[v] In Bacon, the defendant employer denied overtime pay to “front line” shift supervisors after classifying them as “exempt executives”. Under the FLSA, exempt executives must 1) be compensated on a salary basis and make no less than $455 per week; 2) have the primary duty of managing the business or a department within it; 3) regularly direct the work of two or more employees; and 4) have the authority to make hiring or firing decisions, or have particular weight given to recommendations as to hiring, firing, or any other change in other workers’ employment statuses.[vi] While the shift supervisors in Bacon satisfied the first three prongs of the executive exemption test, the Court remanded based on the fourth; because plaintiffs’ recommendations about the change in employment status of other employees were often not considered by upper-level management, a jury may find that they did not have a significant influence over whether employment status was actually changed. According to the plaintiffs, no significant weight was given to their probationary evaluations; their job descriptions didn’t include giving hiring, firing, or other employment status change suggestions to upper-level managers; they didn’t partake in the interviewing process; and the defendants often discarded discipline reports written by shift supervisors; thus, the case was remanded to a jury for a decision on whether the issues surrounding these facts pointed to exempt employee status.
Exhibit D: Timekeeping Disputes
Most recently, in Moran v. Al Basit LLC et al.,[vii] the appeals court held that, in some circumstances, a plaintiff’s testimony alone regarding disputed overtime can create a genuine issue of material fact requiring a jury trial to resolve the claims. The plaintiff, a mechanic at defendant’s auto shop, complained that the defendant failed to properly compensate him for overtime work (and in turn that his employment was terminated in retaliation for requesting proper overtime compensation; this issue was not appealed). Management claimed that security camera footage was used to track the times of employees’ arrivals and departures, and timesheets were handwritten by management based upon this footage. Although the plaintiff’s testimony about his exact working hours was not precise, the court here held that precision was not necessary: not only was the burden on the employer to keep proper records (with the handwritten timesheets here not comprising “objective incontrovertible evidence” of hours worked), but that even plaintiff’s imprecise testimony alone was enough to create a genuine issue of fact to be resolved by a jury.
While they present diverse factual scenarios, and implicate distinct legal arguments regarding the right to overtime pay, the cases in Keller, Killion, Bacon, and Moran together present a clear body of law showing a recent trend and a clear preference in the Sixth Circuit for fact finding by jury rather than by judge. In all four cases over the last year the Sixth Circuit has reversed summary judgment orders by the district court and remanded the cases for further proceedings – most likely a trial where a jury is empowered to determine whether the mandates of the Fair Labor Standards Act have been violated. Employers who seek to skirt the law should be on notice that quick dismissals by a judge are not in favor. And employees or independent contractors who have been deprived of a fair day’s pay may reasonably also read the tea leaves to conclude that their rights to overtime pay are likely to get their day in court and not be lightly dismissed by a judge.
[i] 29 CFR 778.415
[ii] Keller v. Miri Microsystems LLC, 781 F.3d 799 (6th Cir. Mich. 2015).
[iii] Id., citing Donovan v. Brandel, 736 F.2d 1114 (6th Cir. Mich. 1984).
[iv] Killion v. KeHE Distribs., LLC, 761 F.3d 574 (6th Cir. Ohio 2014).
[v] Bacon v. Eaton Corp., 565 Fed. Appx. 437 (6th Cir. Mich. 2014).
[vi] 29 CFR 541.100(a).
[vii] Moran v. Al Basit LLC, 2015 U.S. App. LEXIS 9021 (6th Cir. Mich. 2015).
