United States v. Silk: Six-Factor Economic Realities Test For Differentiating Between Employees and Independent Contractors

In United States v. Silk, 331 U.S. 704 (1947), the Supreme Court applied a multi-factor test for determining whether workers were independent contractors or employees. The case is important because, inter alia, these “Silk factors” came to be applied in cases under the Fair Labor Standards Act to determine whether the economic realities show that workers are “employees” for purposes of the FLSA’s minimum wage and overtime requirements, or “independent contractors” not protected by these requirements. 

Statutory and Regulatory Background

The FLSA requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. 29 U.S.C §§ 206-207. The FLSA also imposes recordkeeping requirements on employers. 29 U.S.C. § 211. These requirements raise questions about what it means to be an “employer” or an “employee,” and, more specifically, about the nature of the employment relationship that falls within the scope of the FLSA’s minimum wage and overtime requirements. 

The FLSA itself defines these terms broadly, but without great clarity. Section 203 of the FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 203(d). The FLSA defines the term “employee” to generally mean “any individual employed by an employer.” 29 U.S.C. § 203(e). And it defines “employ” as “includes to suffer or permit to work.”  29 U.S.C. § 203(g)

While Silk involved cases brought under a different law, the Social Security Act, the test it articulated for determining whether a worker is an employee or an independent contractor came to be applied in FLSA cases. See Schultz v. Cap. Int’l Sec., Inc., 466 F.3d 298, 304–05 (4th Cir. 2006).

Facts

Albert Silk Coal Company sold coal in Topeka, Kansas. It paid “unloaders” an agreed price per ton to unload coal from railroad cars. These workers came to the coal yard “as they please and [we]re assigned a car to unload and a place to put the coal.” 331 U.S. 704, 706. They furnished their own tools, worked when they wanted to, and worked for others at will. Id

Silk contracted with workers who owned their own trucks to deliver coal. Id. The truckers were paid a uniform price per ton, out of the price Silk received for the coal. The truckers worked out a system among themselves, using a “call list,” for allocating trucking jobs among them. Id. The truckers “[we]re not instructed how to do their jobs, but [we]re merely given a ticket telling them where the coal is to be delivered and whether the charge is to be collected or not.” Id. at 706-07. The truckers “could and often did refuse to make a delivery without penalty.” Id. at 707. Further, the truckers could “come and go as they please and frequently did leave the premises without permission.” Id. The truckers could and did haul for others when they wanted. Id. They paid “all the expenses of operating their trucks, and furnish[ed] extra help necessary to the delivery of the coal and all equipment except the yard storage bins.” Id. No record was kept of their time. Id. They were paid after each trip, at the end of the day or at the end of the week, as they requested. Id.

The Court’s Decision: An Economic Realities Test to Determine Whether a Worker is An Employee or an Independent Contractor

The Silk Court held that the coal unloaders were “employees” within the meaning of the SSA, while the truckers were “independent contractors” rather than employees. In reaching this conclusion, the Court articulated several factors to consider in assessing whether a worker is an employee or an independent contractor:

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. These unloaders and truckers and their assistants are from one standpoint an integral part of the businesses of retailing coal or transporting freight. Their energy, care and judgment may conserve their equipment or increase their earnings but Greyvan and Silk are the directors of their businesses. On the other hand, the truckmen hire their own assistants, own their trucks, pay their own expenses, with minor exceptions, and depend upon their own initiative, judgment and energy for a large part of their success.

331 U.S. 704, 716.

Applying these factors, the Silk Court observed that the unloaders “provided only picks and shovels” and “had no opportunity to gain or lose except from the work of their hands and these simple tools.” and “did work in the course of the employer’s trade or business. 331 U.S. 704, 717–18

The Court placed no significance on the fact that the unloaders did not work regularly: “That the unloaders did not work regularly is not significant. They did work in the course of the employer’s trade or business. This brings them under the coverage of the [Social Security Act].” Id. 

As for the truckers, the Court concluded that they were independent contractors due to their investment in and management of their operations, the level of control they exercised, and opportunities for profit from their managerial skill, and other factors:

[W]here the arrangements leave the driver-owners so much responsibility [sic] the investment and management as here, they must be held to be independent contractors…These driver-owners are small businessmen. They own their own trucks. They hire their own helpers. In one instance they haul for a single business, in the other for any customer. The distinction, though important, is not controlling. It is the total situation, including the risk undertaken, the control exercised, the opportunity for profit from sound management, that marks these driver-owners as independent contractors.

331 U.S. 704, 719.

Courts in the Fourth Circuit now apply Silk in determining whether the economic reality shows that a worker is an independent contractor or an employee for purposes of the FLSA’s minimum wage and overtime requirements, using a six-factor test derived from the Silk decision. The Fourth Circuit describes those “Silk factors” as:

(1) the degree of control that the putative employer has over the manner in which the work is performed; 

(2) the worker’s opportunities for profit or loss dependent on his managerial skill;

(3) the worker’s investment in equipment or material, or his employment of other workers;

(4) the degree of skill required for the work;

(5) the permanence of the working relationship; and

(6) the degree to which the services rendered are an integral part of the putative employer’s business. 

Schultz v. Cap. Int’l Sec., Inc., 466 F.3d 298, 304–05 (4th Cir. 2006) (citations omitted) (“These factors are often called the ‘Silk factors’ in reference to United States v. Silk … the Supreme Court case from which they derive.”) As the Fourth Circuit in Schultz described the test, “No single factor is dispositive; again, the test is designed to capture the economic realities of the relationship between the worker and the putative employer.” Id. (citation omitted). 

Analysis

In sum, Silk applied a multi-factor “economic realities” test for determining whether workers were independent contractors or employees. The case is important because, inter alia, these “Silk factors” came to be applied in cases under the FLSA, to determine whether the economic realities show that workers are employees for purposes of the FLSA’s minimum wage and overtime requirements. 

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The information you obtain at this site is not legal advice, is not intended to be legal advice, and does not create an attorney-client relationship. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Coffield PLC and attorney Tim Coffield welcome your calls, emails, and contact forms. Contacting Coffield PLC or Tim does not create an attorney-client relationship.