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Karlson v. Action Process Service & Private Investigations, LLC

United States Court of Appeals, Eighth Circuit

June 26, 2017

Jeffrey Karlson Plaintiff-Appellant
Action Process Service & Private Investigations, LLC, et al. Defendants-Appellees

          Submitted: January 10, 2017

         Appeal from United States District Court for the Eastern District of Arkansas - Little Rock

          Before RILEY, Chief Judge, [1] LOKEN and BENTON, Circuit Judges.

          LOKEN, Circuit Judge.

         In 2007, college student Jeffrey Karlson began serving legal process for Action Process Service & Private Investigations, LLC ("APS"), a new company that owner Loretta Foster was running out of her mobile home. Karlson signed a Process Server Agreement reciting that he "is an independent contractor with respect to [APS]." Seven years later, Karlson began serving process for an APS competitor and soon filed this lawsuit against APS and Foster to recover unpaid overtime wages allegedly owed under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201, et seq., and the Arkansas Minimum Wage Act ("AMWA"), Ark. Code Ann. § 11-4-201, et seq. After a two-day trial, the jury returned a verdict that Karlson was not an employee of APS or Foster. Karlson filed a renewed motion for judgment as a matter of law. The district court[2] adopted the jury's conclusion, denied the renewed motion, and entered judgment in favor of APS and Foster. Karlson appeals, arguing (1) the undisputed facts show that Karlson was defendants' employee as a matter of law, and (2) the district court abused its discretion in excluding evidence of the amount of defendants' business expenditures. We affirm.


         The FLSA states that "no employer shall employ any of his employees . . . for a workweek longer than forty hours" without paying one-and-one-half times the regular rate for any excess hours. 29 U.S.C. § 207. The critical issue is whether Karlson was an employee, as opposed to an independent contractor, when working as an APS process server. Like many federal statutes, the FLSA defines "employee, " in circular fashion, as "any individual employed by an employer." § 203(e)(1). But the FLSA also defines "employ" as meaning "to suffer or permit to work, " § 203(g), a broad definition derived from child labor statutes. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947). While FLSA wage and hour requirements do not apply to true independent contractors, see id. at 729, this broad definition of employ "stretches the meaning of 'employee' to cover some parties who might not qualify as such under a strict application of traditional agency law principles." Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992).

         Rather than the common law test Darden adopted for determining whether a worker is an employee or an independent contractor under many federal statutes, "[t]he test of employment under the [FLSA] is one of economic reality." Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290, 301 (1985) (quotation omitted).[3] That the contracts between Karlson and APS labeled Karlson an independent contractor may be relevant but is not controlling. Rutherford, 331 U.S. at 729. In United States v. Silk, 331 U.S. 704, 716 (1947), a Social Security Act case decided the same day as Rutherford, the Court observed:

Probably it is quite impossible to extract from the statute a rule of thumb to define the limits of the employer-employee relationship. The Social Security Agency and the courts will find that degrees of control, opportunities for profit or loss, investment in facilities, permanency of relation and skill required in the claimed independent operation are important for decision. No one is controlling nor is the list complete.

         In resolving this issue under the FLSA, many courts have adopted this passage as a multi-factor "economic realities" test, though neither the Supreme Court nor this court has ever held that it is the governing standard.

         Whatever test is applied, deciding whether Karlson was an employee under the FLSA involves questions of fact -- the precise nature of his duties and relationship with the alleged employer -- but the ultimate question of "[w]hether or not an individual is an 'employee' within the meaning of the FLSA is a legal determination rather than a factual one." Donovan v. Trans World Airlines, Inc., 726 F.2d 415, 417 (8th Cir. 1984). This rule, derived from governing Supreme Court decisions, has caused considerable confusion in the trial and appeal of FLSA cases. See, e.g., Jarrett v. ERC Props., Inc., 211 F.3d 1078, 1081-82 (8th Cir. 2000).


         In this case, at the close of evidence, the district court denied Karlson's motion for judgment as a matter of law and decided, without objection by any party, to submit the employee/independent contractor issue to the jury. Jury Instruction No. 6 stated that the jury "must determine" whether Karlson was "employed" by either or both defendants, or was an "independent contractor, " as defendants alleged. Paraphrasing the "economic realities" test from Silk, the instruction provided six factors the jury "should consider" -- (i) the degree of control exercised by the alleged employer over the business operations; (ii) the relative investments of the alleged employer and employee; (iii) the degree to which the employee's opportunity for profit and loss is determined by the employer; (iv) the skill and initiative required in performing the job; (v) the permanency of the relationship; and (vi) the degree to which the alleged employee's tasks are integral to the employer's business. The instruction concluded: "No one factor alone should decide the question; instead, you should consider the economic realities of the entire relationship between the parties based on these factors as a whole." The verdict form told the jury to decide whether Karlson was employed by APS; whether Karlson was employed by Foster; and, if the jury answered "Yes" to either question, how many hours Karlson worked each of the weeks at issue. Karlson did not object to submitting the employee/independent contractor issue to the jury. He raises no objection on appeal to either Instruction No. 6 or the verdict form.

         During its deliberations, the jury submitted a question asking whether it could find that Karlson was an employee, yet was paid what he was owed. After the court discussed with counsel how the question should be answered, counsel for Karlson said, "I think we're all on the same page as to what ...

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