Deviation From the “Economic Realities” Test in the Eleventh Circuit
Employers across all regulated fields often are faced with the question of whether they should hire individuals as employees or as independent contractors. Even if they make the decision to hire people as independent contractors, they may ultimately be hit with retroactive employee taxes later if the IRS finds the individual does not have enough economic independence from their employer.
Background of the “Economic Realities” Test
The large majority of circuits in the United States adopt the Department of Labor’s (“DOL’s”) “economic realities” rest in determining whether an individual is an employee or an independent contractor. This test instructed courts adjudicating this issue to look at six factors in determining whether the individual was economically independent enough to be considered an independent contractor. These factors are as follows:
- Whether the work performed is an integral part of the employer’s business;
- If the work performed requires special skills;
- Permanency of the position;
- Degree of control retained by the employer;
- Extent of relative instruments between the employer and worker; and
- If the worker has a chance for profit or loss depending on their managerial skills.
Rejection and Deviation from the “Economic Realities” Test
In the 2015 case of Schumann v. Collier Anesthesia, the Eleventh Circuit Court of Appeals (the circuit where Florida sits) rejected the DOL’s “economic realities” test, finding it was too rigid for employers when looked at in the context of interns. Instead, the Schumann court derived its own test known as the “primary beneficiary” test to determine if an intern is an independent contractor. This test considers seven factors as follows:
- Whether the individual and employer know there is no expectation of compensation;
- Whether the position provides training that could be otherwise obtained in an educational environment;
- Whether the position is tied to formal education credit;
- Whether the position accommodates the individual’s academic calendar;
- Whether the employer gets an immediate benefit from the intern;
- Whether the intern is guaranteed a job; and
- Whether the position is for the sole benefit of the intern.
Consequences of the Eleventh Circuit Rejection of the “Economic Realities” Test
The Schumann decision suggests that Florida employers who are trying to claim the interns they hired are independent contractors may have an easier time doing so under the “primary beneficiary” test. However, the “economic realities” test still provides additional guidance to individuals trying to determine the correctness of their classification. Specifically, since the Schumann court opined that the “economic realities” test was too rigid, this indicates if a Florida individual satisfies the heightened requirements of that test, they are more likely to be correctly classified as an independent contractor under the “primary beneficiary” test. Also, it should be noted that the Schumann court specifically addressed the circumstances of hiring interns, so the test is catered to that particular employer-employee relationship. It is unclear whether the Eleventh Circuit would also reject the “economic realities” test in future cases as well. In fact, in the 2013 case of Scantland v. Jeffry Knight, Inc., the Eleventh Circuit did adopt the “economic realities” test for determining whether a cable installer was an independent contractor.
Contact Us Today for Assistance
It can be difficult for hired individuals to determine and make a case for being classified as independent contractor. The experienced Clearwater employment attorneys at Dilla Employment Law, P.A. can help you go through the factors of the two tests. Contact us today for a consultation.