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Corporate Function — Not Corporate Formality — Determines FLSA Status

Former Associate
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The Tenth Circuit Court of Appeals, in its October 3, 2018 opinion, reiterated that a worker’s status as an employee or an independent contractor cannot be determined by corporate formalities or labels alone. In Acosta v. Jani-King of Okla., Inc., Case No. 17-6179, 2018 WL 4762748 (10th Cir. Oct. 3, 2018), the court found that individual workers who personally performed janitorial cleaning services were employees under the Fair Labor Standards Act (“FLSA”) even though those workers formed separate corporate entities and entered into franchise agreements with a franchisor.

Despite that Jani-King entered into franchise agreements with the workers to provide the janitorial services, the Department of Labor (“DOL”) sued it for failure to maintain proper wage and hour records for the workers as required by the FLSA. The District Court dismissed the DOL’s suit, citing the corporate formalities and separateness of Jani-King from its franchisees. The Tenth Circuit, however, found that the District Court’s holding “improperly ignores the economic realities test.” Id. at 2. It is the reality of “of an individual’s working relationship with the employer—not necessarily the label or the structure overlaying the relationship” that determines whether an individual is an employee for purposes of the FLSA. Id.