I own a small Florida S corporation grossing below $500k per year. I manufacture custom cabinetry. About 3 1/2 years ago a young man walked into the shop and explained he was a cabinet installer and was in need of some work. I took his number and a few weeks later called him to do an installation for me. He did and I paid him a fee based on the lineal footage of cabinets he installed. He kept coming back and asking for more work. I don't have installations every day so he offered to help me out in the shop when there were no installations available. I offered him $15 per hour with no witholding taxes deducted or overtime pay. I told him he would be responsible for his own taxes. He happily agreed and worked for me for 2 1/2years. He was always paid by check, never cash. I do have all the cancelled checks. One year ago we parted ways. The quality of his worked declined drastically due to personal problems he was having. I haven't heard from him at all since then. I was served a few days ago. He has brought a suit against my corporation and I am also personally named on the suit. He claims he worked an average of 66 hours per week for 2 1/2 years and I failed to pay overtime wages. The 66 hours per week is a huge exageration, actually it's a lie. His attorney is seeking double his overtime wages plus attorneys fees (totaling $37K !!). If I was breaking the law in any way I was completely unaware. I thought I was helping the guy out. I am really worried as my business is directly related to the housing market and we all know what is going on there. Needless to say I am hanging on from month to month trying to stay in business. This suit could have not come at a worse time. I don't even have the money to defend myself. I would greatly appreciate advice from anyone out there. Thank you.

Try legal aid or the nearest law school.

I have to say though, that you were probably subject to the FLSA. Gross revenue is not the only criteria. It's an either-or situation and the OR is engaging in interstate commerce. I'd bet that at least some of your materials came from out-of-state or were manufactured out-out-state, even if your direct supplier was in the state.
http://www.dol.gov/compliance/guide/minwage.htm#who

It also sounds like this individual WAS very probably an employee, even be it a "casual" one who only worked when there was work to do. The fact that you supplied the materials, you provided the customer, you told him where and when to work, and were responsible for the quality of his work, and (I would bet) that he had no financial stake in his work (in other words, he did not stand to make a profit or incur a financial loss, other than his pay), all are indications that there was, in fact, an employee-employer relationship here, no matter what "arrangement" you may have had with him. The facts that you paid him on a piecework basis and that you paid him with a check does not make him an independent contractor. Piecework pay is perfectly valid for employees and employees may legally be paid in cash.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

I'm sure this isn't what you want to hear, but unless there is something very arcane that you haven't posted, I don't see much hope that you would prevail in a trial.

You have some real problems here that are going to be far beyond the ability of some advise from a free website to fix. There is a pretty good chance that you are going to engage a lawyer sooner or later.

- All workers are legally either employees or independant contractors (IC) under federal law. You have a weak argument that the initial "install cabinets" work falls under the IC guidelines. If it ended there, it would not be a big deal. However it is 99.99999999% likely that the worker was legally an employee for all work done since then (2.5 years). The employer (you) was legally required to follow minimum wage and overtime (OT) laws, withhold and remit FICA taxes, pay employer taxes (FICA, FUTA, SUTA), and maybe WC. Saying that you did not know what the law says may be an excess but it is not a legally valid excuse. Everyone claims that and it never works (legally). The following article discusses IRS's rules on worker classification. I can also get you a pointer to federal DOL's rules on the same subject (not the same for reasons to strange to discuss). I have no idea what FL's rules are, but probably a lot like federal DOL's. Based on what you have said, I would make a very large bet, that this worker is very easily an employee under all three sets of rules (as in not even close to being IC).
http://payroll-taxes.com/articles/art2.html

- Federal rules requires employers (with a few exceptions) to maintain records on all employees including all hours worked. You did not maintain such records. Not knowing that you were required to is legally not an excuse.

- Saying that you disagree with the hours worked claim is of course something you should do when get to court. If you have any actual documentation that supports your position (work orders, records of actual work being done), you should definiately bring to help support your position. But lets be clear that you are working from a very weak position. You illegally misclassified the worker as an IC, and presumably also failed to track hours hours worked as required by federal law (FLSA). These are not situations that tend to impress judges.

- There is a very good chance that you are also going to have actions at some time in the future from FL UI (when the worker files a UI claim), SSA on FICA taxes not paid, and maybe from IRS on FIT not withheld. You might also end up on some audit lists, and if you have any other workers you are calling IC in error, now would be a very good time to fix that. I do not know if any of these folks talk to DHS or not, but you should also get your I-9s in order if necessary.

Past that, there are no magic words I can give you to make your very real problems go away. Any time one becomes an employer, one is required to learn the employer rules. IRS publications 15, 15A and 15B are a good starting point. Worker classification is about as fundamental as it gets.

I appreciate your advice and comments. Yes , you correct about the "interstate commerce". Much of my material originates from out of my home state. Are you saying I have no defense at all ?

I'm not seeing much, but then, I'm not an attorney. Just an HR/Payroll professional who is now into my 31st year in this line of work.

I think the best you can hope for is some type of settlement and I just don't see how you are going to handle this without an attorney.

I appreciate your advice and comments. Yes , you correct about the "interstate commerce". Much of my material originates from out of my home state. Are you saying I have no defense at all ?

We are saying that based on what you have said, that you broke several laws and that you are indeed guilty of what you are being accused of. What type of defense do you think should exist?

I did a little checking. Per the BNA payroll library, Florida does indeed not have any overtime laws, so if you could somehow convince the judge that FLSA is not applicable, then arguably you are not subject to overtime. It would help if both the judge and the other guy's attorney know nothing about labor law. That is perhaps possible. Labor law is a specialty area.
http://www.dol.gov/esa/regs/compliance/whd/whdfs14.htm

Just to be clear however, even if you somehow make the FLSA law not apply to you (and legally it should), that does not help you with IRS, SSA, FL-DOL or DSH. Those are very different organizations using very different laws.

And like Patty I have been doing this 30+ years, and based on what you have said, I like the other guy's case much better then I like yours.

Dumb question. You said that you were paying this worker $15/hr for the past 2.5 years. Who determined how many hours this person worked? Did he submit an invoice or some time record that he prepared? It would seem that the worker's claim is not just that OT was not paid, but that you were also not paying for all hours worked. If the worker was preparing the time records your payment was based on then the worker's claim is damaged. The case law on that is Yanoscheck v. Montgomery Ward, 176 Wash. 137 (1934).

I spoke with a couple of attorneys that sent me letters offering thier services about a week before I was formally served. When I mentioned the name of the attorney for the plaintiff basically I was told "oh no" or "oh my God". I was told that the plaintiffs attorney specializes in these cases. I was told that he has an aggressive spanish advertising campaign ( radio and TV) to seek out clients who were not paid overtime wages. To my surprises I heard words like "snake", "shark", and "sleazy" as well.

The only records I have are the canceled checks. I can acurately produce time records or hours worked by dividing each check by $15. The pay period can be determined by the days in between each check. The plaintiff had a small journal in which he would write his hours. He would show me the journal when he wanted a check and I would calculate the hours each day (x) $15. The checks were not weekly. Like I said he would ask me for a check only when he wanted one. For a period I was paying him once a month or even once in 6 weeks only because he liked getting a "large" check. I would initial the journal on the day I issued a check and it was mutually understood that he was paid in full up to and including that date. I know now that this isn't how it should have been done. At the time I really didn't realize I was doing ANYTHING wrong. I know ignorance can not be my defense but I was indeed very ignorant. I'm quite sure the journal is no longer available.

Another thing I should mention is that the last year of working with me all the checks for his hours were made to a Corporation that he formed and not to his name. I would write "contract labor" in the memo section of these checks. He formed this corporation which now is disolved (I checked), so that we could take on jobs as a joint venture between our 2 companies.
He had even obtained a workmens compensation policy under his corporate name. We tried one joint venture and it was a complete failure but I continued to write checks to his corporation rather than his name. He wanted it this way and I never questioned why. Can this fact be helpful in my defense?

I read elsewhere on the net that there is a statute of limitations in these cases and that the plaintiff can only request overtime pay going back 2 years prior to the filing date. He hasn't worked for me for a year which would mean he could only claim one year. Is this true in Florida ?

Another thing I should mention is that the last year of working with me all the checks for his hours were made to a Corporation that he formed and not to his name. I would write "contract labor" in the memo section of these checks. He formed this corporation which now is disolved (I checked), so that we could take on jobs as a joint venture between our 2 companies.


Check the article on the worker classification I gave you several answers before, but if your earlier statement about him helping you out in your shop was correct, this stuff you do not mention does not help you much. You need to pass a majority of the 20-factor test. It might hurt the employee in the judge's eyes or it might not.

Florida is not my state and I have no idea what statute of limitations is, or what their court rules are. I will say that the other guy's lawyer should know that even if he/she knows nothing else. In states other then Florida this type of stuff normally is handled by state DOL. Florida does not have a state DOL, so their court system handles everything.

A possible weak partial defense is for you to truthfully claim that you paid what hours were billed. The other side basically has to argue that you did not. Unless the other lawyer is a complete idiot, that is exactly what they will do.

You can try to claim that the worker really is IC, but if that is the case, then I hope you read that article on worker classification and try to come up with a really good theory how someone who apparently is working in your shop for 2.5 years is not an employee. I will say as someone who has had Accounts Payable at some pretty big companies report to me, I find the lack of invoices or supporting documentation from someone that you want to claim is an arm's length IC appalling.

One more time. You need to talk to a lawyer in Florida!!!. There is no magic answer to make all of this go away because as previously stated you really did apparently break a bunch of laws, and your problem is much worse then can be solved on a labor law website. It was your responsibility for correctly classifying the worker and your responsiblity to maintain your own records and it was your responsibility to pay overtime to Non-Exempt employees. There is nothing the worker can say or do which would eliminate your employer responsibilites.

I have a consultation for tomorrow at 10:30 AM with a law firm specializing in labor law. I'm posting here to try to get as much info as possible prior to speaking with them. I appreciate your time, thank you.

Read the articles that Patty and I referenced. Good luck.

I will add here that Patty and DAW, both of whom I have known a lot longer than we have been posting on LLT, are the two most knowledgeable people on payroll issues that I know, and if I had a payroll problem they are the first ones I would go to for help. If they are telling you that you have a serious problem, you can take that answer to the bank (no pun intended).

For an employer to be subject to pay overtime to any worker, the employer must be subject to the applicable federal law, in this case the FLSA. You already have indicated that you make less than $500k a yr, so base on gross revenues the FLSA is not applicable. The only other way is what is call individual coverage, the individual employee must be involved in interstate commerce. In other words the employees must handle the goods that are produce (cabinets) on a regular basis.

This is not apparent that he does. The goods have come to rest, (from the interstate commerce movement), they are no longer moving in commerce. They come to your shop in a raw material state and in your shop the raw materials are transformed into the cabinets. Then and only then, they go on to the final destination, to be installed. Hence the goods have come to a final stop, at your shop & no longer moving in commerce.

Correct me if the above scenario is somewhat accurate. If, yes you may not owe any overtime. A good labor attorney can verify this.

As the employer failed to meet the minimum $500k (enterprise coverage) and the employee fails to meet the individual coverage, under section 3(s) of the FLSA, FLSA over time is not applicable to the employee. It appears the individual coverage is not applicable to the employee.

Go see a labor lawyer and tell him to look into FOH 11c10 (Construction-Out of state materials). “Construction materials received from out of state are deem to come to a stop to rest when delivered to a construction site and commerce shall not be considered as continuing during the actual construction process even though, as is sometimes the case, particular materials may be so design or formed that their place in the finish structure is designate at time for delivery. Thus for example, employees engage in installing porcelain enamel paneling (such as is used on gasoline service station or store fronts) or erecting prefabricated housing or other structures are not thereby individually covered where the sole basis for such coverage would be that the materials have been shipped from out of state….”

You should seek legal counsel from a competent labor attorney or you can simply take you case to court, the other side has to prove that you make the $500k a yr and if not then they have to prove the individual coverage is applicable, which is not. Your choice, your money…

Good points, and very worth mentioning to your lawyer. Let's be clear however that the OP has multiple problems and even if every thing cited works, the only problem being addressed is whether or not the overtime premium is due. All other problems including the lack of records supporting actual hours worked, the orginal worker classification issue (IC vs. employee) and possible future future problems with IRS, SSA, FL-DOL and DHS related to the orginal worker classification are not addressed by this cite. This cite solely suggests that if the employee is legally an employee that FLSA is not applicable and an overtime premium is not due. The [B]FOH/B] mentioned is the federal DOL's Field Operations Handbook and is a very good source for FLSA related issues.