Calling someone an independent contractor does not automatically make it true. In Galarza v. One Call Claims, LLC, the 11th Circuit reminded employers in Alabama, Florida and Georgia that courts look past labels to the economic reality of the working relationship. Employers need to look at the day-to-day facts. Who controls the schedule? Who owns the gear? Who takes the financial risk? How important is the work to your operation? Only after answering these questions can employers classify workers as employees or contractors.
How the 11th circuit measures worker classification
Courts apply a six-factor economic reality test to determine employee status under the Fair Labor Standards Act (FLSA). It checks how dependent a worker is on the business rather than what the contract says. For example, judges look for plain signs: does the worker have other clients, own their tools, make their own business decisions and work for you only briefly or for a long time?
Six key factors for evaluating classification
When reviewing workers, businesses should focus on the conditions that define their relationship. These factors often appear together and influence each other:
- Degree of control over work schedules and tasks
- Opportunity for profit or risk of loss
- Investment or ownership of tools and materials needed for the job
- Skill level and ability to earn independently
- Permanency and exclusivity of the work relationship
- How integral the work is to the business operations
Understanding these factors helps employers measure the actual economic dependence of workers, which is the true test for classification.
What should businesses do?
Employers need to audit all independent contractor agreements to make sure they match how work is performed. Review schedules, supervision and compensation structures to see if workers are truly independent. Determine which roles are central to your business and whether contractors handle core operations. Finally, consult with employment counsel to adjust practices and minimize misclassification risks.
Misclassification cases like Galarza show that courts look beyond titles and contracts. Businesses that regularly evaluate worker relationships can avoid penalties, ensure FLSA compliance and protect themselves from costly litigation.