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New Jersey Employment Rights Lawyer Discusses Misclassification of Employees As Independent Contractors to Avoid Overtime Requirements of the Fair Labor Standards Act

This entry is guest written by my partner Deborah Mains.

For some time now, there's been an ever-increasing trend by employers to classify or designate employees as "independent contractors" or as "1099 employees" in order to, among other things, evade their obligation to pay overtime for hours worked more than 40 per week by their employees.

The Fair Labor Standards Act (FLSA) is the federal statute that requires covered employers to pay the minimum wage to employees and to pay overtime at one-and-a-half times the regular hourly rate to non-exempt employees. In order to be entitled to receive overtime, an individual has to be an "employee" within the meaning of the law.

Employers use a variety of methods to deprive people who are employees of the overtime to which they're entitled by law. Some employers will require their employees to sign a "contract" in which the employee agrees that they are an independent contractor, that they'll be paid on a 1099 basis and that they won't receive overtime or other benefits. Many employees mistakenly believe that if they have signed such a contract, they are bound by it. This is not the case. No employee and no employer can enter into a contract to deprive an employee of the wages to which they're entitled by the federal wage and hour law (FLSA). Even if your employer has induced you to sign such a contract or to sign an acknowledgement that you understand you're to be paid on a 1099 basis and has had you fill out forms to receive income on a 1099 basis, that does not mean that you cannot seek overtime to which you may be entitled under the law.

Another, more recent, method to avoid the overtime requirements of the wage and hour laws is for an employer to require employees to create what is effectively a sham or shell business in order to create the impression that someone is not an employee. Like a "contract" designating an employee as an independent contractor, this scheme will not withstand legal scrutiny if the individual is indeed an employee within the meaning of the law.

In order to determine whether an individual is an employee within the meaning of the wage and hour law, the federal courts utilize a test known as the "economic reality test." As the name suggests, the court will examine a number of factors to determine what the economic reality is of the relationship between the employer and the employee. If the reality is that the employee is economically dependent upon the employee for his or her income, is under the control and supervision of the employer, utilizes equipment and materials supplied by the employer and is an integral part of the employer's business, the overwhelming likelihood is that individual will be deemed to be an employee pursuant to the economic reality test. On the other hand, if the relationship and the economic reality of that relationship demonstrates that the putative employee is really an entrepreneur running his or her own legitimate business which serves not only the putative employer but other "clients" or "customers", thus generating multiple sources of income, and the putative employee provides his or her own equipment and materials and is not under the supervision and direction of the employer, the likelihood is that this individual would be deemed not to be an employee. Generally speaking, this is rare.

If your employer has changed your designation from a W-2 employee to a 1099 employee, but nothing else about your relationship has changed or if you have secured a position in which you believe you are an employee but you are being paid on a 1099 basis, and you are working more than 40 hours a week without getting paid overtime for the time over 40, contact us. They've broken the law.

Remember, a "rose by any other name would smell as sweet." If you're an employee, you're an employee. And the FLSA - and Costello & Mains - are there for you.

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