On March 29, 2012, a federal district judge in Florida issued an order granting summary judgment in favor of a cable installation company, finding that its technician installers are independent contractors and not employees. Scantland v. Jeffry Knight, Inc., No. 8:09-CV-1985-T-17TBM, U.S. District Court for the Middle District of Florida (March 29, 2012).
Applying the “economic realities test,” the court examined the circumstances under which technician installers were engaged by Jeffry Knight, Inc. to install and repair telecommunications services and perform miscellaneous other functions under Knight’s service contract with Bright House Networks. The court found that the relationship between the parties was a “typical outsourcing arrangement, and . . . not a sham arrangement entered into to evade the requirements of the [Fair Labor Standards Act].”
The court determined that the following factors weighed more heavily in favor of independent contractor status than employee status:
- The nature and degree of control over the manner in which the work was performed by the technician installers;
- The technicians’ opportunity for profit and loss;
- The technicians’ investment in equipment and materials or employment of helpers; and
- The skill required for performing the work.
On the other hand, according to the court, the duration and degree of permanency of the working relationship and the fact that the installation and repair services performed by the technicians was an integral part of Knight’s installation services weighed more in favor of employee status.
The question for the court boiled down to whether, considering all of the circumstances, the technician installers were so dependent on Knight as a matter of economic reality that they came within the protection of the FLSA, or whether they were sufficiently independent to fall outside the statute’s coverage.
Using economic dependence as the primary indicator of the employer-employee relationship, the court looked at each relevant factor in terms of its ability to shed light on the putative employee’s dependence on the alleged employer.
Factor 1: Control Over Manner of Work
Regarding the issue of the nature and degree of control exercised over the technicians’ work, the court viewed Knight’s ability to control the quality of the work in this highly technical field as being, for the most part, consistent with a contractor/client relationship and not necessarily indicative of an employer’s control over an employee. This included “backcharging” for failure to meet quality standards and requiring approval for additional work. Some controls such as screenings and background checks were equally consistent with independent contractor status as with employee status. Downloading installers without notice (i.e., not assigning them more work) indicated some degree of control more consistent with employee status because the independent contractor agreement provided for termination with 30 days’ notice. However, the court noted that this provided the technicians with a potential claim for breach of contract and did not necessarily transform the technician from independent contractor to employee. The technicians were deemed to stand as separate economic entities because they retained sufficient responsibility for controlling the manner and performance of their work, including: performing work free from defects; assuring compliance with applicable safety standards; selecting and assigning their employees; supervising their own employees; and paying all required taxes.
Factor 2: Opportunity for Profit and Loss
With respect to the opportunity for profit and loss, the court emphasized the technicians’ ability to enhance their profits by: improving their technical skills; upselling to customers; complying with technical specifications to avoid backcharges; minimizing their equipment and operating costs; and choosing to incorporate as opposed to operating as a sole proprietor. While the constraints placed by Knight through control of route assignments, scheduled time slots, and downtime between jobs due to customer availability served to limit the technicians’ profits, these limitations were no more than any other typical subcontractor/client relationship.
Factor 3: Investment in Equipment and Materials or Employment of Helpers
The court determined that this factor, the substantial investment in equipment, also weighed in favor of independent contractor status. In reaching this finding, the court noted that the technicians: provided their own vehicles; paid for their own gas; purchased tools and safety equipment, commercial liability and auto insurance; paid for uniforms, signs, and telephone services; and paid their own taxes.
Factor 4: Skill
The court observed that the work involved special skill, that not all technicians have the same skill level, and that the degree of skill impacted work and route assignments. Those considerations supported the finding of independent contractor status.
Factors 5 and 6: Permanency of Working Relationship and Duration and Integral Nature of Services
The court found that the technicians had full-time work schedules and no incentive or time to work for competitors. Many of the technicians had ongoing relationships with Knight lasting for several years. Yet, the court found that while this factor mildly favored employee status, it was not enough to transform the relationship from independent contractor to employee. Likewise, the fact that the installation and repair services performed by the technicians were integral to the services provided by Knight was a factor that favored employee status, but it was not sufficient to tip the balance toward employee status.
In the final analysis, the court held that “the factors of the nature and degree of control over the manner in which the work is performed, the opportunity for profit and loss, investment in materials and the presence of special skill clearly outweigh the factors of duration and service rendered as an integral part of the business.”
This case is significant for companies with cable and internet installation and repair subcontracts because of the court’s recognition that given the level of control exercised by the technicians, they stood as a separate economic entity from Knight. The court cited Santelices v Cable Wiring and South Florida Cable Contractors, Inc., 147 F. Supp. 2d 1313 for the economic realities analysis that guided its determination. However, the court in Santelices held that the defendant’s level of control over the plaintiff supported an employment relationship.
While this was a significant victory for cable installation contractors, the opinion represents a significant ruling for companies alleged to be employers in the ongoing debate and overwhelming litigation involving independent contractor status throughout the country.