Donovan v. DialAmerica Marketing, Inc.
757 F.2d 1376 (3d Cir. 1985)

Facts:

  • A major aspect of DialAmerica’s business was getting magazine renewal subscriptions from people whose subscriptions were about to expire.
    • The publishers would supply DialAmerica with the names and addresses of subscribers, and DialAmerica would then locate the phone numbers.
  • There were two groups of workers at issue in this case:

(1) Home-researchers: This group would research the phone numbers.
(2) Distributors: This group would give the research work to other home researchers.

  • The Secretary of Labor alleged that DialAmerica was failing to comply with minimum-wage and record-keeping provisions of the FLSA.
  • Note: Both groups of workers signed “Independent Contractor” documents.

History:
The District Court held that the two groups of workers were independent contractors and not employees, thus not subject to the FLSA.

Issue:
What are the specific factors in determining whether a worker is an “employee” for FLSA purposes?

Holding:

(1) The degree of the employer’s right to control the manner in which the work is to be performed;
(2) The employee’s opportunity for profit or loss depending upon his managerial skill;
(3) The employee’s investment in equipment or materials required for his task, or his employment of helpers;
(4) Whether the service rendered requires a special skill;
(5) The degree of permanence of the working relationship; and
(6) Whether the service rendered is an integral part of the alleged employer’s business.

There’s also one general consideration – the “economic reality” test:

  • This test asks whether the workers are dependent upon the business to which they render service.
    • The test does not concern whether the workers depend on the money they earn – it examines whether the workers are dependent on the business for continued employment.

Here, the court held that the home researchers were employees, but the distributors, in a close call, were independent contractors.

  • Affirmed in part and reversed in part.

Reasoning:
(1) Home researchers:

  • The investment of these workers was not great.
  • The opportunity for profit and loss was small.
  • The skills required were few.
  • There was a degree of permanence because the workers didn’t transfer their services from place to place and each worked for the defendant for ling periods of time.
  • Locating phone numbers was an integral part of the business.
  • The workers were only able to work when defendant needed their services – i.e., economically dependent.
  • The fact that one works at home is not dispositive of the issue of “employee” status under the FLSA.

(2) Distributors:

  • The distributors were subject to minimal oversight or control over their distribution activities.
  • Moreover, they faced a real opportunity for either a profit or loss in their operations, depending upon the amount of their investment and their skills in management.
  • Finally, their work as distributors was not an integral part of DialAmerica’s business and thus was less likely to be performed by an ‘employee’ of DialAmerica.”