2015 10 16 Wage LawsToday’s guest blog post comes from Rebecca Pontikes of Pontikes Law, LLC. Rebecca represents plaintiffs in employment law matters, including wage and hour claims. This post provides solo and small firms with the key differences between independent contractors, employees, and interns; and how to ensure compliance with federal and state laws, so that your firm doesn’t end up owing triple damages in the event of a lawsuit for wages.    

As a solo, or even at a small firm, extra staffing can be helpful if you become overloaded with your matters, when you need time off, or for backup.

What can you do?

Potential Solution #1: Hire a Contract Attorney!

You might think that’s a great idea, but have you really hired an employee?

Unlike a true independent contractor, hiring an employee means complying with a range of laws and exposure to liability. If you’ve hired an employee, you’ll need to withhold federal and state taxes, make sure to pay minimum wage, issue a W2, report to the Department of Unemployment Assistance, and buy a worker’s compensation insurance policy. You also have exposure to liability under various employment laws, including triple damages under the Wage Statute if you fail to pay your employee.

Then, how do you know whether you’ve hired an independent contractor or employee? There are two tests:

1) Under Federal Law

Under federal law, the Fair Labor Standards Act (FLSA) defines who is an employee. The employment relationship, under the FLSA, is defined broadly.

Under federal law, an employee is

  • economically dependent on an employer and
  • is suffered or permitted to work for the employer.

To determine “economic dependence”, the court will use the “economic realities” test. That test is based on the following factors:

  • Is the work performed an integral part of the employer’s business?
  • Is the worker’s opportunity for profit or loss dependent on his or her managerial skill?
  • What is the extent of the relative investments of the employer and the worker?
  • Does the work performed require special skills and initiative?
  • What is the permanency of the relationship?
  • What is the degree of control exercised or retained by the employer?

The court will also look at the totality of the circumstances. What that means is that:

  • Labels do not matter
  • Written contracts do not matter

For more information about the federal law, take a look at this resource from the Department of Labor: http://www.dol.gov/whd/workers/Misclassification/index.htm.

2) Under Massachusetts Law

Under Massachusetts’ wage statue, the definition of an employee is even broader. In the Commonwealth, there is a three-part test to determine whether an individual is an employee:

  1. Freedom from Control
  2. Service Outside the Usual Course of the Employer’s Business
  3. Independent Trade, Occupation, Profession or Business

For more information about this test, see the Attorney General’s website: http://www.mass.gov/ago/doing-business-in-massachusetts/labor-laws-and-public-construction/massachusetts-independent.html.

In most situations, hiring a so-called “contract attorney” to write a brief, review documents, or do a research project would likely be considered an employee under both the federal and Massachusetts’ tests. In many cases, this tends to impact the following sets of individuals:

  • A recent law school graduate who is looking to make money while searching for a full-time job; or
  • An attorney who has been laid off from his or her law firm and who is looking to make extra money while searching for a full-time job.

Clearly, this classification issue can cause a headache for employers. So, some attorneys will aim to avoid it by engaging an intern . . . which brings use to potential solution #2.

Potential Solution #2: Get an Intern from One of the Local Law Schools to Volunteer!

This seems like a “win/win” solution for both parties: the intern gets experience and the attorney gets work done. However, even if your law student is learning something while doing work on a case, it is most likely that she or he is an employee who must be paid at least minimum wage.

The FLSA and Massachusetts broad definitions of the employment relationship apply here as well. Internships in the “for-profit” private sector, even a law student learning how to practice, will most often be viewed as employment, unless:

  • The internship is similar to training in an educational environment;
  • The internship is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

More information is available from Department of Labor: http://www.dol.gov/whd/regs/compliance/whdfs71.htm.

In most cases, a law student who conducts research, drafts discovery, drafts a memorandum, or summarizes a deposition transcript will not fit all six criteria. In particular, it is unlikely that a law firm can show that it derives no immediate advantage from the activities of the intern. Even if there is some benefit to the “work experience,” it will not necessarily make the position for the benefit of the intern. In fact, in most situations, the reason law firms seek out interns is primarily for the law firm’s benefit.

To stay out of trouble, it is better to err on the side of paying a student for his or her work.

The cautions above do not mean that solo or small firms should not hire temporary help when they need it or allow law students to participate in a case. What it does mean is that any lawyer who hires temporary help or hires a law student should make sure to consider all the financial considerations involved and budget accordingly. If all the wage laws are followed correctly, temporary help or an intern can provide a huge benefit.