Are installers contractors or are they employees? This question has puzzled many in this industry and it’s been hanging over the heads of independent retailers for years. The answer may finally be arriving, and it’s likely not going to be what many in this industry want to hear.
We had an opportunity to sit down with the man who has stayed on top of this issue for the long haul and has shed some new light on this whole question. That man is Jeff King, legal counsel for the World Floor Covering Association (WFCA). He discusses the Labor Department’s recent reinterpretation of who exactly qualifies as an independent contractor under the Fair Labor Standards Act. Using the Economics Reality test, King explains the prime deciding factors that reveal the department’s stance going forward—a stance that in reality says “most workers are indeed employees.” King also discusses the consequences of this interpretation, the potential cost to industry retailers and installers, and the actions the WFCA is taking to mitigate this situation.
We invite you to listen to this conversation in its entirety in the archives of TalkFloor.com. Here are some excerpts from that conversation.
TF: Jeff, it appears there have been changes in the way government entities view the relationship between a retail/contractor and subcontractors over the years, but some of the most recent changes seem to spell trouble for the floor covering industry.
King: There was a very significant change that took place on July 15. As most are aware, the independent contractor situation has always been quite confusing because there seems to be different standards of what constitutes an independent contractor and an employee, depending on who you are talking to—the Internal Revenue Service, the Department of Labor, the state unemployment offices or even the states’ workers compensation offices.
On July 15, the Department of Labor, Wage and Hour Division issued an aggressive interpretation as to who qualifies as an independent contractor under the Fair Labor Standards Act, which is the act that controls who has to be paid overtime, minimum wage—areas that have increasingly become litigated in recent years. If the Department deems an individual should have been an employee instead of an independent contractor, they are also entitled to additional benefits including overtime, which most likely they have not been receiving.
So, the Labor Department came up with an interpretation of their existing rule, using what they call the Economic Realities Test. Many call it the Entrepreneurial Test. This is a test that looks at the independent contractor to see if he is truly in business for himself. The Department of Labor basically asks these questions: Is the work an integral part of the employer’s business? Is it done off-site? Could the work be done if it were not a part of the business? The floor covering industry has always held that floor covering can be sold without installation and it’s commonly done.
"Now most installers have their own van and they have their own tools. However, this will no longer be sufficient. Rather, the Department will look at the investment the contractor has made in his business as compared with the investment the retailer has made in his store. If they find the contractor’s investment is largely disproportionate to that of the retailer’s, then they will find that the worker is indeed not an independent contractor."
The next factors are can the contractor make a profit or incur a loss? Do they invest in their business? Do they have special skills or technical training? Does the contractor control the means and manner of performance or does the employer do it? And can the contractor work for others? These are the factors that have always been considered in determining the status of a contractor. What happened in July is the Department of Labor basically claimed all of these factors still apply, but there are two factors that are now predominant.
The first of these two factors: Can the contractor make a profit or risk incurring a loss? The floor covering industry has always dealt with this issue by saying a contractor can work extra hours or bring others in to do some of the work, and they are free to do this. What the Labor Department is now saying is the contractor’s ability to work more hours no longer applies. What they are saying with this reinterpretation is special managerial skills are now required that affect profit or loss. This may take the form of putting together a special team that does specialized types of flooring, for example.
TF: It sounds that in reality the Labor Department is stacking the deck against there being independent contractors?
King: They absolutely are. In fact in the opening announcement the Department said most of the workers are in reality employees and the status of independent contractor is limited to very few individuals who are truly in business for themselves.
The other factor they stressed dealt with the investment that worker makes in the business. Now most installers have their own van and they have their own tools. However, this will no longer be sufficient. Rather, the Department will look at the investment the contractor has made in his business as compared with the investment the retailer has made in his store. If they find the contractor’s investment is largely disproportionate to that of the retailer’s, then they will find that the worker is indeed not an independent contractor.
My opinion is it will no longer be sufficient for an installer to buy installation tools and a van and claim themselves to be an independent contractor, because they have not made sufficient investment in the company.
TF: There are numerous situations where a contract has been initiated between an installer and a retailer stating the installer is an independent contractor. Would such an agreement carry any weight?
King: Having a contract always carries some weight, but a retailer cannot have complete control over an installer. With the installer performing 80% to 90% of the work he does for the retailer, or with the retailer providing tools and training, that installer will be an employee whether they have a contract or not.
TF: What is your expectation as to how this will play out?
King: I think what we’re going to see is more people getting caught in this trap. The Labor Department will be investigating cases, they will be working with states and the wage and hour bureaus of the states. I read reports daily from the Labor Department about the cases they are working on, and rarely does a week go by where I don’t see two or three independent contractor cases. They will continue to pursue these cases. They will continue to take action and seek back wages and benefits for workers.
There has also been an increased number of class action suits under the wage and hour laws. So very likely we will see—and this may be the largest fear—people approaching employers saying all of their contractors, whether they be installers, plumbers or painters, should in reality be employers and they want all of that back pay including reimbursement for the employer portion of their taxes. This I feel will be an increasing claim being sought.
Class action lawyers have filed challenges on sexual, racial and even religious grounds and also suits involving the Americans with Disabilities Act, and have done so over the past 20 years. This employee vs. independent contractor issue is the new class action for many of these lawyers to make millions of dollars. It will happen. In fact it is happening. The case that Lowe’s lost in California was a class action suit.
TF: What is your take on how this reinterpretation of the Fair Labor Standards Act by the Labor Department will play out in the floor covering industry? It appears it has the potential to put some retailers out of business.
King: I don’t think this will put people out of business all that much. I think people will have to adjust to it. For the independent contractor it will eliminate the guy with a dream, where he and his son can go out and install floor covering and build a business. The WFCA is going to Congress to approach this issue.
Let me quote something straight from the Department’s interpretation: “The technical skills of cable installers, carpenters, construction workers and electricians for example, even assuming that they are special, are not themselves indicative of any independent or business initiative.”
TF: So that means even though a person may possess skills in carpentry, floor covering, plumbing or other skills, they must in addition have business skills. Is that what that means?
King: They have to have business skills and managerial skills. As I said we at the WFCA will challenge this in Congress. We would like a consistent standard, a standard that, if the IRS is determined to classify an operator as an independent contractor, then the Labor Department cannot claim that the same operator is not [a contractor].
TF: As you have mentioned, there have been class action suits seeking back wages and overtime for individuals who are now pursuing employee status under this reinterpretation. Do you expect floor covering retailers will be asked to pay large sums of money because installers who have been viewed as independent contractors for all these years are now deemed employees?
King: It has already happened with the suit against Lowe’s. There have been class action suits filed against the alternative transportation companies Uber and Lyft. There have been state laws passed that not only create liability but penalties. There have been cases involving installers, but they have generally involved larger companies. I can’t say we will see this action against individual retailers. But it seems inevitable.
TF: What if anything can retailers and installers do now to deal with this situation?
King: There are a number of things that can be done now. First, have a contract. Make sure installers have a federal tax ID number. Make sure they have an office and a phone number, that there is something they have literally invested in. Make sure they are not working exclusively for you as a retailer or nearly exclusively for you.
Make sure they provide their own equipment, even allowing them to buy some of the sundry items elsewhere, which may show some distance. Also something that may prove extremely dangerous: if as a retailer you have employees doing installation be very careful because it will be very difficult to convince anyone that you can also have independent contractors doing the same thing, because it seems to be an integral part of the business. Many retailers have adopted the practice of giving customers the names of installers who could provide the service.
And finally, retailers can look at the book that is available from the WFCA on independent contractors. That book is available at WFCA.org.
Editor’s Note: To hear the full three-part interview with Jeff King, visit www.talkfloor.com, click on the Floor Radio tab and click back in the archives to the audio files posted between Sept. 16-18. The three parts of the interview can be found under the title “WFCA Legal Counsel Jeff King—The Government’s Changing Interpretation of an Independent Contractor.”
We’d love to hear your feedback on this and other conversations you’ve watched or listened to on the site, along with any ideas you have for people and companies you’d like to see interviewed. You can contact either Dave Foster at firstname.lastname@example.org or Michael Chmielecki at ChmieleckiM@bnpmedia.com.