BUSI 2001 Week 11 Contractor Classification Memo Example

Memorandum

To: Owner, Prairie Valley Supply

From: Operations Manager

Date: November 29, 2027

Re: Classifying the proposed rush-delivery couriers under federal wage law

Question Presented

May Prairie Valley Supply treat the four drivers it plans to engage for rush deliveries as independent contractors, paid a flat fee per delivery with no overtime, without violating the Fair Labor Standards Act?

Position

Probably not, as the plan is now drawn. On the facts below, most of the economic reality factors point toward employee status. The company should either hire the couriers as part-time employees or redesign the arrangement so that the drivers truly run their own businesses. The safer choice is the first.

Facts

Prairie Valley now delivers to about 300 restaurants with eight trucks driven by employees. Restaurants have begun asking for same-day deliveries of small items, such as a case of gloves or a replacement blender jar. The plan is to engage four drivers who would use their own cars, receive delivery assignments through the company's routing app, wear a Prairie Valley shirt, and be paid $18 per delivery set by the company. They could decline an assignment and could also drive for other services. Each would sign an agreement calling them independent contractors. The company expects each driver to work most weekdays for the foreseeable future.

The Legal Standard

The Act requires employers to pay covered employees at least the federal minimum wage and overtime pay of 150 percent of the regular rate for every hour beyond forty in a workweek (Fair Labor Standards Act of 1938, 29 U.S.C. § 207). Its definition of "employ" is broad, reaching anyone the business suffers or permits to work, and the Supreme Court has long held that the label the parties choose does not control; what matters is the economic reality of the relationship (Rutherford Food Corp. v. McComb, 1947). The test under the Act is broader than the common-law agency test used for many other federal statutes (Nationwide Mutual Insurance Co. v. Darden, 1992).

In 2024 the Department of Labor issued a rule, published at 89 Fed. Reg. 1638, directing a totality-of-the-circumstances analysis of six factors: whether the worker can earn more or lose money through managerial skill, the investments by the worker and the potential employer, how permanent the relationship is, how much control the company has, whether the work is an integral part of the potential employer's business, and the worker's skill and initiative (Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 2024). In 2025 the Department announced that its investigators would no longer apply that rule in enforcement and would instead rely on its earlier guidance, while private lawsuits remain governed by the courts' own economic reality tests (U.S. Department of Labor, 2025). The factors in both sources overlap heavily, so the analysis below uses them as a common framework.

Applying the Factors

Opportunity for profit or loss. The company sets the $18 fee and assigns the deliveries. A driver can earn more only by accepting more assignments, which is working more hours rather than exercising managerial skill. This points toward employee status.

Investment. The drivers supply their own cars, which is some investment. But a personal vehicle used for ordinary driving is modest beside the company's warehouse, inventory, routing software and customer base, and courts compare the two investments. This factor leans slightly toward employee status.

Permanence. The company expects the drivers to work most weekdays indefinitely. A continuing, regular relationship is typical of employment. The freedom to drive for other services cuts the other way somewhat, but the expected pattern points toward employee status.

Control. The company assigns deliveries through its app, sets the price, and requires a company shirt. The right to decline individual jobs adds some independence. On balance the company controls the key terms of the work, which points toward employee status.

Integral part of the business. Delivering products to restaurants is what Prairie Valley does; rush delivery is a new line of that same service. This factor points strongly toward employee status.

Skill and initiative. Driving and delivering packages require no specialized skill, and the drivers would not be using business initiative to find customers. This points toward employee status.

Consequences of Getting It Wrong

If the drivers are later found to be employees, the company could owe two years of unpaid minimum wage and overtime, or three if a court finds the violation willful, plus the same sum again in liquidated damages, along with the drivers' attorney's fees (Mallor et al., 2022). Misclassification also carries tax consequences, since the company would owe employment taxes it did not withhold, and the Internal Revenue Service applies its own common-law test (Internal Revenue Service, 2025). Nebraska law adds further questions for unemployment insurance and workers' compensation that this memo does not resolve.

Options

Option one is to hire the four couriers as part-time hourly employees, pay at least the minimum wage for all hours worked, and reimburse mileage. This removes the classification risk at a known cost.

Option two is to contract with an established courier company that employs its own drivers and serves many customers. That company bears the classification question for its own staff, and Prairie Valley pays a negotiated rate.

Option three, keeping the plan but changing the facts, would require letting drivers set their own prices, market to other businesses, and run deliveries as their own enterprise. That is unlikely to fit how Prairie Valley wants rush delivery to work.

Recommendation

Adopt option one for the first six months and compare its cost with quotes for option two. Do not sign the contractor agreements as drafted; a label in a contract will not change the economic reality the factors measure. Before launch, the company should confirm the plan with employment counsel licensed in Nebraska.

References

Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638 (2024).

Fair Labor Standards Act of 1938, 29 U.S.C. §§ 201-219.

Internal Revenue Service. (2025). Employer's supplemental tax guide (Publication 15-A).

Mallor, J. P., Barnes, A. J., Bowers, L. T., & Langvardt, A. W. (2022). Business law: The ethical, global, and e-commerce environment (18th ed.). McGraw Hill.

Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992).

Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947).

U.S. Department of Labor, Wage and Hour Division. (2025). Field assistance bulletin No. 2025-1: Enforcement of independent contractor status under the Fair Labor Standards Act.