CWS 3.0: January 5, 2011 - Vol 3.1

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Legal Eagle: Employee or Contractor?

A federal court in Illinois ruled that a worker was an employee, not an independent contractor, and was entitled for overtime wages in the case of Bulaj v. Wilmette Real Estate & Mgmt. Co. Rexhep Bulaj had worked for Wilmette Real Estate & Management Co. for 12 years, providing janitorial, cleaning and maintenance services for multiple properties. After he was terminated in 2008, he sued Wilmette, claiming not to have been paid for the overtime hours he regularly worked. Wilmette claimed he was an independent contractor and thus not entitled to overtime wages. At issue was whether the Bulaj was entitled to receive overtime pay. In order to determine this, the court first weighed whether Bulaj was in fact an employee of Wilmette and not an independent contractor.

The court began by applying the following six factor test:

  1. the nature and degree of the company's control over the manner in which work is performed;
  2. the opportunity for the worker to obtain a profit or loss;
  3. the worker's investment in equipment or materials;
  4. the requirement of special skills for the worker's duties;
  5. the permanency and duration of the parties' working relationship; and
  6. the extent to which the worker's duties constitute an integral part of the alleged employer's business.

Throughout Bulaj's tenure at Wilmette, the company monitored the quality of his work and disciplined him whenever his work fell below expectations. He was paid a salary and lived in a rent-free apartment at one of Wilmette's properties. Wilmette also regularly withheld federal and state income, Social Security, Medicare and unemployment taxes from Bulaj's paychecks, as well as payment for health insurance benefits Bulaj received as a member of a janitors' union. In reporting Bulaj's earnings to the IRS, Wilmette used the IRS Form W-2 Wage and Tax Statements, identifying Bulaj as an "employee" and Wilmette as his "employer," rather than the 1099 form, which is used to report payments made to independent contractors. Further, Wilmette identified Bulaj as an employee in its own payroll system. Bulaj's biweekly pay statements listed Wilmette's name under the "Employer Information" section and noted the account as being a "Payroll Account" on the face of the check itself. Despite all of this, Wilmette claimed that Bulaj was an independent contractor.

The court disagreed, applying the facts of the case to the six-factor test. Further, upon determining Bulaj's classification status, the court held that Bulaj was entitled to receive overtime wages. Bulaj testified that he routinely worked 66 hours a week, yet was not paid for overtime. Wilmette did not present any evidence to rebut Bulaj's claim; rather, Wilmette affirmed that Bulaj's salary "did not fluctuate from week-to-week depending on the number of hours he actually worked" and that Wilmette expected that Bulaj would fulfill his duties regardless of the hours required.

While independent contractor classification often can be tricky business, Bulaj's status may seem obvious given the facts as presented to the court. Eric H. Rumbaugh, partner at the law firm of Michael Best & Friedrich, notes: "As related by the Court, basically all of the facts lined up in favor of employee status." The seeming clarity of this case notwithstanding, companies should be mindful always to classify their employees and contractors appropriately, and ensure that the working relationship continues to be consistent with such classifications. Should a company start to exert more and more control over the method of its ICs' work and discipline them, those workers may be able to claim employee status.

Further, companies should be mindful of how all of their employees are classified with regard to exemption status. Rumbaugh, who writes an Employment Law column for this publication, addressed this issue in the Winter 2010 issue of Contingent Workforce Strategies magazine.

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