August 2013

By: Nancy E. Joerg, Esq.

In a written opinion released in early July 2013, U.S. District Judge James F. Holderman ruled that the owner of a maid service based in Skokie, Illinois violated federal law by improperly declaring her employee maids to be independent contractors and failing to pay them all the money they were owed.

The federal judge decided that the maid service owner (Jadwiga Malewicka) owed 75 misclassified independent contractor maids who worked for Skokie Maid and Cleaning Service Ltd. a total of roughly $500,000.

Skokie Maid is a company which provides cleaning services to homes and businesses in north suburban Chicago. The lawsuit against Skokie Maid by the U.S. Department of Labor alleged that from November 2008 to July 2011, Malewicka and Skokie Maid knowingly misclassified employees as independent contractors (in order to avoid paying the independent contractor maids overtime compensation as would be required by law of employees).

ECONOMIC REALITIES TEST USED TO EVALUATE INDEPENDENT CONTRACTOR STATUS: Judge Holderman did not agree that the maids were independent contractors. Judge Holderman used the economic realities test for determining when individuals are independent contractors or employees.

The six relevant factors under the economic realities test are:

• The nature and degree of the alleged employer’s control as to the manner in which the work is to be performed;
• The alleged employee’s opportunity for profit or loss depending upon his managerial skill;
• The alleged employee’s investment in equipment or materials required for his task, or his employment of workers;
• Whether the service rendered requires a special skill;
• The degree of permanency and duration of the working relationship; and
• The extent to which the service rendered is an integral part of the alleged employer’s business.

FACTS THAT HURT INDEPENDENT CONTRACTOR STATUS: Judge Holderman noted that Malewicka exerted a great deal of control over the maids by assigning clients, setting work hours and issuing detailed cleaning instructions.

Significantly, Judge Holderman noted that the maids did not invest in their cleaning work. They did not pay for their own bond insurance or provide their own cleaning supplies or cleaning equipment.

Other facts which were important in this case were that 1) Skokie Maid would occasionally train new maids, 2) most of the maids had no other employment beside Skokie Maid, and 3) the maids were seemingly financially dependent on Skokie Maid.

Judge Holderman further observed that the maids worked under fixed pay and fixed hours.

NON-COMPETE AGREEMENT WAS AN ADDITIONAL NEGATIVE FOR INDEPENDENT CONTRACTOR STATUS: Judge Holderman also noted that the maids had to enter into a non-compete agreement with Skokie Maid which covered the year after they would leave the company.

Judge Holderman apparently is of the strong opinion that a true independent contractor should not be under a non-compete agreement (this issue has often been debated in legal circles). Judge Holderman wrote: “Malewicka cannot have it both ways: That is, she cannot claim that her maids are independent contractors, who would traditionally be free to use their skills wherever they please, and simultaneously prevent them from working for other maid services in the Chicagoland area.”

VIOLATIONS FOUND TO BE WILLFUL: This lawsuit resulted from investigations by the Wage and Hour division of the U.S. Department of Labor (which alleged violations of minimum wage, overtime, and record keeping provisions). In this case, the maids were not compensated with overtime pay for hours worked in excess of 40 hours per week as would be required if the maids were classified as employees and not as independent contractors. Also, Skokie Maid and Cleaning Services Ltd. failed to keep proper payroll records on the maids, arguing that the maids were independent contractors and not employees. The U.S. Department of Labor successfully argued that the violations by Skokie Maid and Cleaning Services were “willful” as to the minimum wage and overtime violations (and therefore the Wage and Hour Division also assessed civil penalties of roughly $70,000).

For consultations on limiting your liability in the use of independent contractors, contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in assisting companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Questions? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.