Tag Archives: Independent Contractor vs Employee

S.D.N.Y.: Where FLSA Defendants Admit Plaintiff Worked As Both Independent Contractor And Employee, Money Earned As Independent Contractor Not Included For Inquiry As To Whether Plaintiff Earned $100,000

Magnoni v. Smith & Laquercia, LLP

This case was before the Court on Defendants’ Motion for Summary Judgment, on several grounds. Summarized below is the Court’s discussion/decision regarding Plaintiff’s earnings and their impact on her status under the so-called “highly compensated employee” exemption.

The Court’s decision relied on the following facts:

Plaintiff’s “employment at S & L, where she worked as a litigation paralegal and handled the normal responsibilities of a paralegal in a litigation law firm, began in 1990. Beginning in 2003, Magnoni was paid a weekly salary with no extra premium for overtime work. S & L paid Magnoni a salary of $64,807.70 in 2005; $67,653.74 in 2006; and $21,846.12 from January 1, 2007 through April 13, 2007. Magnoni alleges that between 2003 and 2005 she did not receive compensatory time or overtime pay from S & L, but admits she received some compensatory time (though no overtime pay) in 2006 and 2007.

Magnoni estimates that she worked approximately six to seven hours of overtime per week between 2001 and 2005, and approximately eight hours of overtime per week in 2006 and 2007. Calculating her overtime on a weekly basis (omitting holidays and days off), Magnoni estimates that she worked about one hour of overtime per week in 2006 and 2007, and “more than that” in 2003, 2004, and 2005. [ ]

In or about November 1997, while employed at S & L, Magnoni formed a business entity named Contessa Legal Process (“Contessa”), which provided process serving and court filing services. S & L was one of Contessa’s many clients. Though Contessa was not incorporated at the time relevant to this action, Magnoni was the sole proprietor of Contessa and S & L made all payments for Contessa’s services directly to Magnoni. For Contessa’s services, S & L paid Magnoni $41,800 in 2005; $49,500 in 2006; and $11,820 through approximately April of 2007. S & L concedes that while Magnoni was S & L’s employee with respect to her paralegal responsibilities, she was an independent contractor with respect to her process

Defendants argue that Magnoni is exempt from coverage by the FLSA because the total annual compensation she received from S & L, when combining her S & L salary and the payments she received from S & L for Contessa’s services, was in excess of $100,000 for 2005 and 2006, and she was projected to receive approximately $125,000 in 2007.”

The Court discussed the applicable law and applied same to the case, noting Defendants CONCEDED that Plaintiff’s work performed for Contessa, was as an independent contractor not an employee.

“Under a regulation issued by the Department of Labor in 2004:

An employee with total annual compensation of at least $100,000 is deemed exempt under section 13(a)(1) of the Act if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee identified in subparts B, C or D of this part.

29 C.F.R. § 541.601(a). The determination of an employee’s “total annual compensation,” may include “commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period.” Id. § 541.601(b)(1). However, the language of § 541.601 leaves no doubt that it applies only to an employee’s total annual compensation; indeed, under the FLSA, independent contractors are exempt from overtime requirements. See, e.g., Van Asdale v. Apollo Assocs., Ltd., No. 6:08-CV-531-ORL-19KRS, 2009 WL 36419, at *1 (M.D.Fla. Jan. 6, 2009) (“Independent contractors are exempt from the overtime requirements of the FLSA.”); see also Schwind v. EW & Assocs., Inc., 357 F.Supp.2d 691, 700 (S.D.N.Y.2005) (analyzing whether the plaintiff was an employee or independent contractor because “[t]he overtime provisions of the FLSA … apply only to individuals who are ‘employees.’ “). Therefore, Magnoni’s compensation for her independent contractor responsibilities cannot be considered part of her total annual compensation as S & L’s employee under the FLSA.

Defendants concede that Magnoni’s process serving and court filing services on behalf of Contessa were rendered in her capacity as an independent contractor, not in her capacity as an employee of S & L as a paralegal. (See, e.g., Defendants’ Memorandum of Law in Support of Their Motion for Summary Judgment, dated March 27, 2009 (“Defs.’ Mem.”), at 1 (stating that Magnoni “was both an employee performing legal assistant responsibilities for S & L as well as an independent contractor providing significant process serving and court filing services for S & L and many other law firms”); id. at 2 (describing Magnoni’s total annual compensation to include compensation received “both as an employee and an independent contractor”); id. at 3 (describing Magnoni’s process serving and court filing services as independent from her paralegal responsibilities); id. at 10 (characterizing Magnoni as being compensated as “both S & L’s employee and S & L’s independent contractor”); id. at 15 (describing Magnoni as “operat[ing] a separate business” while at S & L); Defendants’ Reply Memorandum of Law in Further Support of Their Motion for Summary Judgment, dated April 29, 2009 (“Defs.’ Reply”), at 4 (describing Magnoni as being compensated as “both an employee and as an independent contractor”).) Thus, any compensation Magnoni received as an independent contractor for the services provided by Contessa was not part of her total annual compensation as S & L’s employee.

Defendants attempt to avoid this outcome by arguing that the Department of Labor’s regulations define “compensation” broadly. However, Defendants do not direct the Court to any case where an “employee['s] … total annual compensation,” 29 C.F.R. § 541.601(a), included payment for services rendered as an independent contractor. This absence of authority is unsurprising; because independent contractors are exempt from the FLSA, it would be antithetical to the spirit of the FLSA to consider payment received as an independent contractor to constitute “employee” compensation, particularly given the mandate that exemptions should be narrowly construed against employers. See In re Novartis Wage & Hour Litig., 593 F.Supp.2d 637, 643 (S.D.N.Y.2009) (“Due to the remedial nature of the FLSA’s overtime requirement, … exemptions should be ‘narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit.’ ” (quoting Bilyou v. Dutchess Beer Distribs., Inc., 300 F.3d 217, 222 (2d Cir.2002) (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960)))); see also Henry v. Quicken Loans Inc., No. 2:04-cv-40346, 2009 WL 596180, at *10 (E.D.Mich. Mar. 9, 2009) (“Defendants bear the burden of establishing the applicability of the highly compensated employee exemption because exemptions are to be narrowly construed and limited to those establishments plainly and unmistakably within the terms and spirit of the FLSA.”)

It would unquestionably violate the terms and spirit of the FLSA to construe an “employee’s” total annual compensation to include payment for separate services provided solely as an independent contractor, given that independent contractors are exempt from the FLSA’s overtime provisions. While Defendants argue that the Court should not delve into the details of Magnoni’s paralegal duties in order to determine her total annual compensation, Defendants’ concessions leave no doubt that regardless of what Magnoni’s responsibilities were as S & L’s employee, they did not include her process serving and court filing services. Indeed, on the 1099-MISC IRS forms Defendants submitted to the Court, S & L consistently listed “[ ]Magnoni d/b/a/ Contessa Legal Process” as receiving “nonemployee compensation” for which no state or federal income tax was withheld. (Certification of Thomas E. Chase, Esq., dated March 27, 2009 (“Chase Cert.”), Ex. D); see also Thibault v. BellSouth Telecomms., Inc., Civ. No. 07-0200, 2008 WL 4877158, at *6 (E.D.La. Nov. 10, 2008) (holding that employer’s lack of salary withholdings on 1099-MISC form indicated that plaintiff was an independent contractor rather than an employee).

Because Defendants concede that Magnoni’s Contessa-related process serving and court filing services were conducted in her capacity as an independent contractor, and narrowly construing the application of FLSA exemptions against S & L, compensation for such services cannot be included in the determination of Magnoni’s total annual compensation as S & L’s employee under the FLSA. Magnoni therefore is not exempt as a highly compensated employee under 29 C.F.R. § 541.601(a), as her total annual compensation as S & L’s employee never exceeded $100,000.”

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Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention, GAO Study Says

A report released this week by the United States’ Government Accountability Office (GAO), highlights the issues created when employers improperly misclassify employees as independent contractors and calls for the DOL and IRS to step up enforcement measures to crack down on the abuses.

According to a summary of the report released on the GAO’s website Wednesday, “When employers improperly classify workers as independent contractors instead of employees, those workers do not receive protections and benefits to which they are entitled, and the employers may fail to pay some taxes they would otherwise be required to pay. The Department of Labor (DOL) and Internal Revenue Service (IRS) are to ensure that employers comply with several labor and tax laws related to worker classification. GAO was asked to examine the extent of misclassification; actions DOL and IRS have taken to address misclassification, including the extent to which they collaborate with each other, states, and other agencies; and options that could help address misclassification. To meet its objectives, GAO reviewed DOL, IRS, and other studies on misclassification and DOL and IRS policies and activities related to classification; interviewed officials from these agencies as well as other stakeholders; analyzed data from DOL investigations involving misclassification; and surveyed states.

The national extent of employee misclassification is unknown; however, earlier and more recent, though not as comprehensive, studies suggest that it could be a significant problem with adverse consequences. For example, for tax year 1984, IRS estimated that U.S. employers misclassified a total of 3.4 million employees, resulting in an estimated revenue loss of $1.6 billion (in 1984 dollars). DOL commissioned a study in 2000 that found that 10 percent to 30 percent of firms audited in 9 states misclassified at least some employees. Although employee misclassification itself is not a violation of law, it is often associated with labor and tax law violations. DOL’s detection of misclassification generally results from its investigations of alleged violations of federal labor law, particularly complaints involving nonpayment of overtime or minimum wages. Although outreach to workers could help reduce the incidence of misclassification, DOL’s work in this area is limited, and the agency rarely uses penalties in cases of misclassification. IRS enforces worker classification compliance primarily through examinations of employers but also offers settlements through which eligible employers under examination can reduce taxes they might owe if they maintain proper classification of their workers in the future. IRS provides general information on classification through its publications and fact sheets available on its Web site and targets outreach efforts to tax and payroll professionals, but generally not to workers. IRS faces challenges with these compliance efforts because of resource constraints and limits that the tax law places on IRS’s classification enforcement and education activities. DOL and IRS typically do not exchange the information they collect on misclassification, in part because of certain restrictions in the tax code on IRS’s ability to share tax information with federal agencies. Also, DOL agencies do not share information internally on misclassification. Few states collaborate with DOL to address misclassification, however, IRS and 34 states share information on misclassification-related audits, as permitted under the tax code. Generally, IRS and states have found collaboration to be helpful, although some states believe information sharing practices could be improved. Some states have reported successful collaboration among their own agencies, including through task forces or joint interagency initiatives to detect misclassification. Although these initiatives are relatively recent, state officials told us that they have been effective in uncovering misclassification. GAO identified various options that could help address the misclassification of employees as independent contractors. Stakeholders GAO surveyed, including labor and employer groups, did not unanimously support or oppose any of these options. However, some options received more support, including enhancing coordination between federal and state agencies, expanding outreach to workers on classification, and allowing employers to voluntarily enter IRS’s settlement program.”

The GAO recommends that, “[t]o assist in preventing and responding to employee misclassification, and to increase its detection of Fair Labor Standards Act (FLSA) and other labor law violations, the Secretary of Labor should direct the Wage and Hour Division (WHD) Administrator to increase the division’s focus on misclassification of employees as independent contractors during targeted investigations.”

A full copy of the GAO report is available here and the summary is available here.

Go here to learn more about employers misclassification of employees vs independant contractors.

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M.D.Fla.: Cable Installer Is An Employee Not An Independent Contractor Of Contractor To Cable Company

Parrilla v. Allcom Const. & Installation Services, LLC

This matter came before the Court after a one-day bench trial on the issue of whether Plaintiff, was an independent contractor, and thus exempt from the overtime compensation requirements of the Fair Labor Standards Act (the “FLSA”). In its decision, on this highly litigated issue, the Court held that Plaintiff was an employee, notwithstanding Defendant’s argument otherwise, after reviewing the six factor “economic reality” test.

Initially the Court laid out the oft-used test:

“In determining whether an individual is an employee or independent contractor, the United States Supreme Court has explained that lower courts must consider the “economic realities” of the parties’ relationship-not the labels or formalities by which the parties characterize their relationship. See generally Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947); see also Bartels v. Birmingham, 332 U.S. 126, 130, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947). The Eleventh Circuit has noted that the following factors guide this inquiry:

(1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed;

(2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill;

(3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers;

(4) whether the service rendered requires a special skill;

(5) the degree of permanency and duration of the working relationship; and

(6) the extent to which the service rendered is an integral part of the alleged employer’s business.

Freund v. Hi-Tech Satellite, Inc., 185 F. App’x 782, 783 (11th Cir.2006) (unpublished) [hereinafter "Freund"] (quoting Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1535 (7th Cir.1987)); see also 29 C.F.R. § 500.20(h)(4).”

The Court then discussed its factual findings as applied to the six factor test:

“A. Nature and Degree of Control Exerted by Defendant Over Plaintiff

The testimony and record evidence in this case establishes that Defendant exerted significant control over Plaintiff. Specifically, Defendant controlled Plaintiff’s daily work schedule, the type of work Plaintiff performed, the amount of time Plaintiff could take off from work, and the manner in which Plaintiff carried out his work.

Defendant determined Plaintiff’s daily work schedule, the resulting number of hours that Plaintiff worked, and the type of jobs that Plaintiff performed. Defendant required Plaintiff to arrive at its place of work at approximately 7:30 a.m. each day; Defendant would then hand Plaintiff a list of work orders to perform for the day. Plaintiff had no control over the work orders that he received, the types of jobs that he could perform or the order in which he carried out the work orders. Plaintiff could not, for instance, perform work orders relating only to Internet service. He had to carry out the work orders that Defendant gave him and in the order that Defendant specified. Furthermore, if a customer requested additional work, or work that differed from what was printed on an existing work order, Plaintiff could not accept the new work unless Bright House and Defendant’s supervisors first approved the new work and Plaintiff received a new work order. Finally, Defendant did not permit Plaintiff to perform cable installation work for any other cable installation provider.

Plaintiff also had little control over when to perform the work orders or the order in which he choose to carry out the work orders. When Bright House customers schedule an appointment with a technician, they are given a two-hour window in which they must wait for the technician to arrive and start performing the work. To ensure that its technicians would be able to meet these windows, Defendant assigned its work orders based largely on geographical proximity. Plaintiff had no control over this assignment process and was required to meet Bright House customers’ time windows. He could not re-schedule customer appointments. Furthermore, Defendant would sometimes instruct Plaintiff to leave a particular job (even if the job were not complete) and go to another job; Plaintiff did not have any meaningful discretion to refuse those instructions.

Defendant also controlled the amount of time, and the manner in which, Plaintiff could take time off. While there was conflicting evidence on this issue, the Court finds that the more credible evidence revealed that Defendant would penalize, or at least threatened to penalize, technicians who frequently requested time off, failed to show up each morning at Defendant’s office, or failed to attend Defendant’s mandatory weekly meetings. Although Defendant appears to have made some allowances for doctors’ appointments, family emergencies and vacations that were planned in advance, it would penalize or terminate technicians who simply decided that, for whatever reason, they did not want to work on a particular day. Indeed, Defendant’s manager testified that its technicians needed to “request” time off.

Defendant also supervised, to a significant extent, the manner in which Plaintiff carried out his work. Defendant provided Plaintiff with specifications (that came mostly from Bright House) on how his work was to be performed. If Bright House informed Defendant that it was not satisfied with the manner in which Plaintiff performed an installation, Defendant would assess Plaintiff with fixed monetary penalties (or “charge-backs”) based on the type of job performed (e.g., the penalty for an unsatisfactory modem installation might be $50, while the penalty on an unsatisfactory television installation might be $25). Defendant automatically deducted these charge-backs from the weekly payments it made to Plaintiff’s company. In some instances, these penalties actually exceeded the total amount Plaintiff was supposed to be paid on a job. Plaintiff had no way of disputing or negotiating the amount of a particular charge-back. Finally, Defendant and Bright House sometimes sent supervisors to “spot-check” or monitor Plaintiff and other technicians after they completed a job or even during a job.

B. Plaintiff’s Opportunity for Profit or Loss Depending on His Managerial Skill

The testimony and record evidence in this case establishes that Plaintiff’s opportunity for profit or loss did not depend upon his managerial skill. Instead, Plaintiff’s compensation was based simply on the number and type of jobs that Defendant gave him and the quality and pace of Plaintiff’s work.

Because Plaintiff was paid on a piece work basis, Plaintiff’s opportunity for profit or loss was, in a simplistic sense, a function of the number of jobs he could complete in a finite time frame. Excluding charge-backs, the more jobs Plaintiff could quickly complete, the more Plaintiff stood to profit.

As noted, supra, however, Plaintiff’s profit was also a function of the type of work orders that Defendant assigned him (and the amount of charge-backs Plaintiff received). Because the types of jobs that Plaintiff performed each paid differently, notwithstanding the amount of time it took to complete those jobs, Plaintiff would experience days that were more profitable than others simply as a result of the type of work orders that Defendant assigned to him. For example, assuming cable modem installations paid more than television installations, if all the work orders Plaintiff received on a given day were for cable modem installations, Plaintiff would make more on that day, ceteris paribus, than if he had been assigned all television installations. Of course, if cable modem installations took twice as long as television installations, it might be the case that Plaintiff could earn the same amount (or more) by just doing television installations throughout the day. Importantly, though, Plaintiff had no control over the types of work orders that he was given and, in at least some instances, Defendant instructed him to leave particular jobs to perform other potentially less profitable jobs.

Furthermore, Plaintiff was not permitted to install cable services for other cable installation companies. Nor was he permitted to provide additional services for Bright House customers without first obtaining a new work order authorized by both Bright House and Defendant.

No matter how quickly or efficiently Plaintiff worked, Defendant’s charge-backs, the manner in which it assigned jobs, and the directives it gave to sometimes leave jobs prior to their completion obviated Plaintiff’s ability to rely upon his own managerial skill.

C. Plaintiff’s Investment in Equipment or His Employment of Others

The testimony and record evidence in this case establishes that Plaintiff did not make any significant investment in capital or employ others.

Although Plaintiff provided most of the equipment necessary for performing installations on behalf of Defendant, Plaintiff’s relative investment in that equipment was small. In total, the cost of the hand tools, cable fishing stick, crimper, hammer drill, cable meter, and ladder that Defendant required Plaintiff to purchase amounted to perhaps no more than $1,000 (the cable meter and hammer drill, for instance, cost $500 and $150, respectively). Bright House provided the actual cable, cable modems, digital video recorders and other material inputs required for the installations. While Plaintiff used his own vehicle (a mini-van) to drive to customer’s houses, that vehicle was also for personal use.

*5 Defendant ostensibly gave Plaintiff the option to hire others through his own company. But that option was illusory. With the exception of just one husband and wife team, none of Defendant’s technicians, including Plaintiff, ever utilized or substituted others to carry out the work orders that Defendant assigned.

D. Special Skills Required for Plaintiff’s Services

The testimony and record evidence in this case establishes that Plaintiff’s work did not require the application of particularly special, or difficult to acquire, skills.

Although Plaintiff’s work involved proper cable wiring, connecting and configuring Internet cable modems, the use of a cable meter, and answering customer’s questions, Defendant’s manager testified that those skills could be acquired in as little as two weeks of on-the-job training. In fact, Defendant often assigned experienced technicians to work with new technicians for a one or two week period in order to get new technicians up to speed. After this short training period, Defendant would start sending the new technicians out into the field.

E. The Degree of Permanence and Duration of Plaintiff’s Working Relationship With Defendant

The testimony and record evidence in this case establishes that there was a high degree of permanence in Plaintiff’s relationship with Defendant. As noted, supra, Plaintiff was not permitted to provide cable installation services for any other cable installation company while we worked for Defendant. Plaintiff was expected to show up at Defendant’s office each morning, six days a week, and was given work orders that typically amounted to a full day’s worth of work. This relationship continued for nearly one and a half years.

F. The Extent to Which Plaintiff’s Work Was Integral to Defendant

The testimony and record evidence in this case establishes that Plaintiff’s work was clearly integral to Defendant’s business. In the absence of Plaintiff’s work, and the work of Defendant’s other installation technicians, Defendant would not succeed as an ongoing enterprise. Defendant conceded as much in its trial brief (Doc. 52 at 5) and later at trial.

V. Conclusion

Based on the totality of the circumstances, it is clear that Plaintiff was an employee-and not an exempt independent contractor-for purposes of the FLSA. Taken together, all six of the factors comprising the “economic reality” test overwhelmingly support the conclusion that Plaintiff was an employee who was economically dependent on Defendant.”

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E.D.N.Y.: Alleged Operators Of Garment Factory May Constitute Plaintiffs’ Employers Or Joint Employers Under FLSA; Motion To Dismiss Denied

Lin v. Great Rose Fashion, Inc.

In this Fair Labor Standards Act (“FLSA”) case, Plaintiffs allege that they were deprived of a minimum wage and overtime pay while working in a garment factory, and ultimately discharged from their employment in retaliation for pursuing their rights to this compensation. Plaintiffs had previously moved for both a preliminary injunction and a TRO, based on alleged retaliatory conduct from Defendants, and allegations that Defendants were seeking to strip the factory where Plaintiffs had been employed of their assets. Of particular interest on the parties Motions currently before the Court, the Defendants sought to dismiss Plaintiffs’ claims based on alleged lack of standing—arguing that that Defendants were not Plaintiffs’ employers under the FLSA. Denying Defendants’ Motion to Dismiss based on lack of standing, the Court reviewed the elements of joint employers under the FLSA as well as those used to distinguish between independent contractors and employees. The Court held an evidentiary hearing and made factual findings regarding the nature of the parties’ relationship.

“Defendants argue that Plaintiffs lack standing to sue because they were not ‘employees,’ as defined in the FLSA, but rather ‘independent contractors.’ Defendants claim they ‘outsourced the packing and trimming work to Wen Ming Lin and Yu Jiao Lin,’ and Wen Ming Lin’ in turn employed a group of ‘independent contractors,’ the Packer Plaintiffs. In support of their view, Defendants assert that they did not hire, fire, supervise, or manage the workers. They claim that the ‘subcontractors’ maintained the other workers’ employment records, negotiated a pay rate for the group and collected checks on one desk, and that ‘the plaintiffs themselves decided when they should arrive, depart, and the amount of time for which they were to work.’

The evidence presented at the Hearing exposed each of these assertions to be patently false. Applying the Brock factors, there is simply no question that these Plaintiffs “depend[ed] upon someone else’s business for the opportunity to render service” and were not “in business for themselves.” See Brock, 840 F.2d at 1059. The Plaintiffs were low-skilled, immigrant piece-workers toiling for long hours of manual labor in a garment factory. At least one, Yu Jiao Lin, expressed that she was illiterate. The testimony of the Plaintiffs established that they were interviewed, hired, fired, assigned work and hours, and supervised and managed by Mrs. Lin and Fang Zhen, or others under their control. (Tr. 31, 33-36, 78-81.) Contrary to the Defendants’ assertions, there is no evidence that Wen Ming Lin or Yu Jiao Lin had the power to hire, fire, manage assignments and schedules, or discipline other workers. (Id.)

It is plain that Mrs. Lin and Fang Zhen exercised a degree of control over the workers commensurate with the role of an employer. The Defendants’ collective denial of control over the workers is not credible. Wen Ming Lin’s referral of prospective workers to Mrs. Lin for her to interview does not elevate him to the role of independent contractor. (Tr. 52-53.) The Defendants’ additional arguments are similarly unavailing and unsupported by the evidence. For example, the Defendants’ repeatedly point to a single paycheck issued on December 9, 2005 and marked “payment for the assigned contractors” as evidence that “Plaintiffs shared and shared alike,” creating a relationship “best [ ] characterized as a partnership.” (Def. Post-Hearing Opp. 3, Def. Ex. A.) The Defendants’ choice to unilaterally label the Plaintiffs “contractors,” and to attempt to pay them via a collective paycheck on one occasion years ago, does not control the legal question before the court. This crude argument fails to set the Plaintiffs apart as independent contractors.

Considering the remaining Brock factors, the Defendants’ “independent contractor” theory proves even more preposterous. There is zero evidence that Plaintiffs had any opportunity for profit or loss or an “investment” in the business. The packers and thread-cutters were engaged in low-skilled factory labor, which was obviously not a matter of “independent initiative.” The Plaintiffs who took the stand worked at the Factory on a permanent, daily basis for three years. Their work at the Factory was not an occasional project. The Plaintiffs performed discrete tasks that assisted the line production, assembly, and packaging of goods. It is clear that their work was “an integral part of the employer’s business.”

Defendants’ contrived efforts to distance themselves from their workers and treat them as “subcontractors” have failed. The Defendants’ argument is nothing more than a transparent attempt to use a legal fiction to escape liability for their alleged labor abuses. The notion that these Plaintiffs acted as independent contractors outside the protection of the FLSA is so thoroughly without merit that it borders on an affront to the dignity of this court.”

B. Silver Fashion and Mrs. Lin Constitute “Employers” Under the FLSA

As a matter of economic reality, the Plaintiffs were employed by the Factory and the entities that owned it over the years: Silver Fashion, Great Rose, and Spring Fashion. Under the Carter factors, Silver Fashion maintained formal control over the Plaintiffs through the actions of its principal managers. Since Mrs. Lin’s parents were absentee, nominal owners of the business, Mrs. Lin controlled the company. The persistent euphemism that Mrs. Lin was just “helping out” her parents and that Fang Zhen was “helping” Mrs. Lin cannot be taken seriously. The only conceded owners or managers of Silver Fashion were Mrs. Lin’s parents, who live in China and appear to have no involvement whatsoever in the operations of this company held in their names. As Mrs. Lin eventually summarized: “Basically I was running the company.”(Tr. 262.)

As reviewed above, Plaintiffs were interviewed, hired, fired, assigned work and hours, and supervised and managed by Mrs. Lin and Fang Zhen, or others under their control. (Tr. 31, 33-36, 78-81.) There is no serious dispute that Mrs. Lin or others acting on her behalf determined the rate and method of payment. Mrs. Lin also maintained employment records, as demonstrated by the Defendants’ production of the Weekly Trim/Packing Reports. (See Def. Ex. A (original records in blue ink).) These records purport to show the quantity and price of the piecework performed by the Packer Plaintiffs, which formed the basis for their weekly compensation. At a minimum, Plaintiffs have standing to sue Silver Fashion, its predecessor entities, and Mrs. Lin under the FLSA. The court reserves judgment pending discovery as to the role of Fang Zhen in the employment scheme.

C. Great Wall and Mr. Lin May Constitute Joint Employers Under the FLSA

Defendants also argue that the case should be dismissed as to Great Wall and Mr. Lin, because they had no “operational control” over the Plaintiffs. (Def. Post-Hearing Opp. 10-15.) The agency regulations promulgated under the FLSA expressly recognize that a worker may be employed by more than one entity at the same time. See29 C.F.R. § 791.2 (2003); Zheng, 355 F.3d at 66 (citing Torres-Lopez v. May, 111 F.3d 633, 639-45 (9th Cir.1997) (permitting claims against joint employers under the FLSA); Antenor v. D & S Farms, 88 F.3d 925, 929-38 (11th Cir.1996) (same)). Plaintiffs have standing to sue Great Wall and Mr. Lin, in addition to the other Defendants, if they exercised “functional control” over the Factory and its workers. See Barfield, 537 F .3d at 143;
Zheng, 355 F.3d at 66, 72.

Discovery is needed to determine whether a functional employment relationship existed between the Plaintiffs and Great Wall under the Zheng factors. The economic reality test intentionally reaches beyond traditional concepts of agency law to encompass “working relationships, which prior to [the FLSA], were not deemed to fall within an employer-employee category.” Zheng, 355 F.3d at 69 (quoting Walling v. Portland Terminal Co., 330 U.S. 148, 150-51 (1947)). Under the theory of functional control, “an entity can be a joint employer under the FLSA even when it does not hire and fire its joint employees, directly dictate their hours, or pay them.” Zheng, 355 F.3d at 70 (interpreting Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947)). Evidence already establishes that purported agents of Great Wall-Mrs. Lin and Fang Zhen, who each testified that they were employed exclusively by Great Wall-supervised the Plaintiffs’ work in the Factory. The ownership of the premises and the equipment used in the Factory could be imputed to Great Wall, given the tangled leasing relationships between Mr. and Mrs. Lin and the fact that the Factory’s space was distinguished from Great Wall’s space by nothing more than a pile of paper boxes. The Second Circuit has also recognized that a company can de facto set employees’ wages and “dictate[ ] the terms and conditions” of their employment, though they do not “literally pay the workers,” where those employees perform work exclusively in service of that company. Id. at 72.In effect, Plaintiffs functionally worked for Great Wall, because they worked in a Factory that manufactured garments exclusively for Great Wall. Upon review of the preliminary evidence before the court, the relationship between Plaintiffs and Silver Fashion appears to have had “no substantial, independent economic purpose” beyond serving as a “subterfuge meant to evade the FLSA or other labor laws” for the benefit of Great Wall.Id.

In light of the court’s obligation to look beyond the strictures of formal tests and consider all relevant facts, the court finds that Defendants’ dubious uses of the corporate form and the interlocking relationships between the Defendant Corporations are pertinent to the joint employer inquiry in this case. Defendants’ attempt to distinguish Great Wall as a mere “customer of Silver Fashion” is a fallacy. Nearly every aspect of these businesses was intertwined. Together, the Lins controlled both companies. Mr. Lin owned Great Wall, and his wife operated Silver Fashion. Mrs. Lin’s parents appear to be nothing more than straw owners of Silver Fashion. Great Wall was Silver Fashion’s landlord and sole client. Silver Fashion manufactured garments exclusively for Great Wall. In turn, Mr. Lin could not identify a single supplier to his company other than Silver Fashion. Mrs. Lin owned the building where both companies were housed, yet leased the entire building to a company wholly controlled by her husband, so that he could sublet part of it back to her parents for $18,000 a month. (See Section II.A supra.)From the rent and the garment sales, significant funds flowed between these related companies on a regular basis. These entities were functioning as complementary components of a single business enterprise.FN9Based upon these facts, Plaintiffs may have standing to hold Great Wall and Mr. Lin liable either as their functional employers or under other legal theories. The court denies Defendants’ Motion to Dismiss for lack of standing in its entirety.”

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