Updated December 9, 2025
On October 16, 2025, the Eleventh Circuit of the United States Court of Appeals issued a decision that clarified the standards for determining whether workers are classified as employees or independent contractors.
What happened?
In Galarza v. One Call Claims, the Eleventh Circuit determined that a group of insurance adjusters pursuing overtime compensation had been misclassified as independent contractors under the Fair Labor Standards Act (“FLSA”). In its determination, the Court applied the six-factor “economic reality” test that stems from the FLSA. In applying this test, the Court found that a jury could reasonably determine the insurance adjusters were employees, not independent contractors. The Court further clarified that when evaluating employee status, courts must consider all relevant job factors, guided by the economic reality of the relationship between the employer and the worker, as well as the workers’ financial dependence on the employer.
How does this decision affect employers?
The Galarza ruling emphasizes that courts are focusing more on the practical and actual circumstances of the relationship between worker and employer. For example, whether the employer or worker sets the worker’s hours, or whether the employer and worker provide the necessary equipment for the job. Accordingly, there is less emphasis placed on contractual language or official labels when determining whether a worker is an employee or an independent contractor. As a result of the Galarza ruling, employers are advised to closely examine their arrangements with independent contractors, especially in cases where those workers carry out essential business functions or operate under substantial control. In addition, employers should reassess their classification procedures, contractor agreements, and day-to-day practices.
Six-Factor Economic Reality Test
- Control Over Work: How much authority the employer has over the worker’s schedule, tasks, and performance.
- Opportunity for Profit or Loss: Whether the worker can influence earnings through skill or initiative, versus being paid a fixed rate.
- Investment in Equipment/Materials: Whether the company provides tools and resources, or the worker invests independently.
- Skill and Profit Potential: Whether specialized skills allow the worker to increase profits or bear losses.
- Permanency of Relationship: Whether the worker remains with the company long-term or works for multiple entities.
- Integral Part of Business: Whether the worker’s role is central to the company’s core operations.
Compliance Recommendations
- Review Agreements & Relationships: Audit independent contractor arrangements to ensure contracts match actual practices and avoid reliance on labels when workers are economically dependent.
- Evaluate Control: Examine how much authority the company exercises over contractors’ schedules, supervision, and approvals, as excessive control may indicate employee status.
- Assess Profit/Loss Opportunities: Review pay structures to confirm whether contractors can realistically earn profits or bear losses, rather than being limited to fixed rates.
- Check Core Business Functions: Determine if contractors are performing essential roles central to operations, which may weigh toward employee classification.
- Seek Legal Guidance: Consult employment counsel before creating or revising contractor relationships to ensure compliance with FLSA standards and recent case law.
If you would like to discuss how these developments may affect your workforce or upcoming projects, we would be happy to schedule a brief consultation. Whether you are looking to proactively assess risk or respond to a recent claim, our Labor & Employment Group is here to help.
This article is for informational purposes only and does not constitute legal advice. Please consult an attorney for advice specific to your situation.
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EMPLOYEE VERSUS INDEPENDENT CONTRACTOR – FINAL RULE ANNOUNCED
On January 6, 2021, the U.S. Department of Labor announced a final rule that is intended to clarify the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA). The effective date of the final rule is March 8, 2021.
This rule streamlines the test to determine who is an independent contractor under the Fair Labor Standards Act to help reduce misclassification of workers and to simplify compliance for businesses. Six real-life examples are included in the rule and are intended to provide greater clarity for businesses and the workforce.
The final rule includes the following clarifications:
- Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
- Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
- The nature and degree of control over the work.
- The worker’s opportunity for profit or loss based on initiative and/or investment.
- Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
- The amount of skill required for the work.
- The degree of permanence of the working relationship between the worker and the potential employer.
- Whether the work is part of an integrated unit of production.
- The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
- Provides six fact-specific examples applying the factors.
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