Don’t assume an intern, independent contractor, trainee or volunteer is not an employee.
As the United States’ and Oregon’s unemployment rates remain in excess of 7.5 percent, area businesses often find themselves able to recruit workers who are willing to work as non-employees—be they interns, trainees, volunteers or independent contractors.
But even though a business and a worker may agree that a particular worker is not an employee, state and federal agencies may not. Misclassification of a worker can cause a business to run afoul of a number of laws and regulations. To avoid the ensuing complications and penalties, the wisest course is for any business to evaluate carefully, at the initiation of a new or changed relationship with a given worker, whether that worker ought, in fact, to be considered an employee.
Numerous sources of law—statutes, cases, regulations and agency interpretations—each define an employee differently. Recent developments, moreover, demonstrate that businesses cannot assume, without careful consideration, that a given worker is not an employee.
For instance, a business cannot assume that if a worker is unpaid, that worker must be a volunteer or intern, and could not possibly be considered an employee. Recently, a federal district court in New York found that unpaid workers who contributed to the production of Fox Searchlight Pictures’ film Black Swan were in fact employees rather than “interns,” and thus were entitled to be paid minimum wage and overtime pay under the federal Fair Labor Standards Act (“FLSA”). In so holding, the court relied in large part on the control and supervisory authority exercised by the employer, Fox Searchlight. Further, the court relied on the Department of Labor’s guidance regarding the “trainee” or “intern” exception to the protections of the FLSA.
Because the work performed did not provide the workers with something beyond ordinary on-the-job training, and because the tasks were work that a paid worker would ordinarily do (such as making copies or running errands), the workers were not interns being provided with a training opportunity, but were simply employees who should have been paid as such. Notably, the workers did not impede the work of others. Rather, the court observed that “[m]enial as it was, their work was essential.” Glatt v. Fox Searchlight Pictures, Inc., No. 11 Civ. 6784, 2013 WL 2495140 (S.D.N.Y. June 11, 2013), at *13.
Just as a worker typically cannot agree to work for less than minimum wage, neither can an ordinary worker agree to work for no wages at all. In fact, the FLSA essentially prohibits the volunteering of services to for-profit private sector employers—generally, people may volunteer their assistance only to public sector, religious or non-profit organizations.
And, even when an intern is truly an intern, she is still entitled to certain protections previously only afforded to employees. A recently enacted Oregon statute provides that interns are now entitled to protection against a variety of unlawful employment practices, including sexual harassment; discrimination based on race, color, religion, gender, sexual orientation, national origin, marital status, age, disability, service in the uniformed services, or tobacco use during nonwork hours; and retaliation for “whistleblowing.”
Relatedly, a business must not assume that because it has entered a contract with a worker and considers that worker to be an independent contractor, that the worker is not legally considered an employee. The FLSA provides that an individual is employed if he is “suffer[ed]or permit[ted]to work.” 29 U.S.C. § 203(g). An individual is excepted from this rule as an independent contractor only under limited circumstances.
Relevant factors in assessing whether a worker is an employee or an independent contractor, for purposes of the FLSA, include whether the services provided by the worker are an integral part of the business, the permanency of the relationship, the worker’s investment in facilities and equipment, the nature and degree of control by the business using the worker’s services, the worker’s opportunities for profit and loss, and the worker’s ability to rely on initiative, judgment, or foresight to engage in open market competition with others in order to succeed as an independent contractor.
Oregon’s Bureau of Labor and Industries (“BOLI”) looks to similar factors in assessing whether an employment relationship exists for purposes of wage and hour law enforcement, but uses a somewhat different test to decide whether a worker is an employee for purposes of civil rights law. Moreover, whether a business files an IRS form 1099 to document its payments to a worker does not conclusively determine whether that worker will be considered an independent contractor or an employee under wage and hour or civil rights laws.
Oregon’s Employment Department has its own definition of an employee for whom a business is required to provide unemployment insurance coverage. The Oregon definition sweeps broadly, capturing many workers and applying even to employers who have only one employee for a portion of the calendar year.
Ultimately, if a business misclassifies a worker as a nonemployee and fails to pay unemployment taxes, the business can find itself liable for back taxes as well as for late penalties and interest. Sometimes, a business does not even learn of its misclassification until a former worker seeks unemployment benefits, perhaps even months after leaving work at the business.
Furthermore, a business that misclassifies workers as nonemployees runs the risk of discovering, subsequently, that those workers were truly “employees” whose employment subjects the business to new obligations under the Affordable Care Act. This error, like errors in tax filings based on misclassification of workers, can also result in penalties to a business.
In sum, whether a worker will be deemed to be an “employee” within the reach of a variety of laws and regulations is a highly fact-specific and individualized determination, and businesses should not assume that any worker, even an unpaid one, is not an employee. When in doubt, consult with an employment attorney, and when doubt remains, err on the side of classifying the worker as an employee paid pursuant to state and federal wage and hour requirements.
Banu Ramachandran is an attorney at Barran Liebman LLP, where she specializes in Employment litigation and advice. Contact her at 503-228-0500 or at banu@barran.com.
