The Fifth Circuit Court of Appeals recently concluded that sales leaders for an insurance company were employees, not independent contractors. Hopkins v. Cornerstone America, No. 07-10952, available at http://www.ca5.uscourts.gov/opinions/pub/07/07-10952-CV0.wpd.pdf (5th Cir. Oct. 13, 2008). Fourteen former sales leaders sued for unpaid overtime wages under the Fair Labor Standards Act (“FLSA”). Because the FLSA applies to employees and not to independent contractors, the lower court first examined the threshold issue of employment status and, in doing so, granted summary judgment for the sales leaders. Cornerstone appealed.
The Court analyzed whether the workers were economically dependent on Cornerstone, examining five non-exhaustive factors: (1) degree of Cornerstone’s control; (2) extent of the workers’ and Cornerstone’s relative investments; (3) degree to which the workers’ opportunities for profit or loss was determined by Cornerstone; (4) workers’ skills and initiative; and (5) permanency of the relationship.
Cornerstone’s sales agents were independent contractors who were paid commissions. The sales leaders (most of whom had been with Cornerstone for years) managed these agents and derived income from overwrite commissions. Cornerstone controlled the hiring and firing of the agents, determined sales territories, and prevented sales leaders from operating other businesses. Based on these facts, the Court concluded that, as a matter of economic reality, the sales leaders were dependent on Cornerstone to such an extent that they could not be considered in business for themselves.