Court Opinion

ID: 2818769
Source: CourtListenerOpinion
Date Created: 2015-07-21 17:01:10.82272+00
Date Added: 2024-06-11T12:44:52.209020
License: Public Domain

NOT PRECEDENTIAL

          UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT

                       _____________

                        No. 14-2734
                       _____________

                  MIKAEL M. SAFARIAN

                               v.

               AMERICAN DG ENERGY INC.

                               v.

               MULTISERVICE POWER, INC.

                       Mikael Safarian,
                                    Appellant

        On Appeal from the United States District Court
                  for the District of New Jersey
              (District Court No.: 3-10-cv-06082)
         District Judge: Honorable Anne E. Thompson

                   Argued on June 2, 2015

Before: RENDELL, HARDIMAN, and VANASKIE, Circuit Judges

                 (Opinion filed: July 21, 2015)
Maurice W. McLaughlin, Esq. (Argued)
Pauline M.K. Young, Esq.
McLaughlin & Nardi
37 Vreeland Avenue
Totowa, NJ 07512
                Counsel for Appellants

Rodman E. Honecker, Esq. (Argued)
Windels, Marx, Lane & Mittendorf
120 Albany Street Plaza, 6th Floor
New Brunswick, NJ 08901
                  Counsel for Appellee

Stephen G. Yoder, Esq.
United States Securities & Exchange Commission
100 F. Street, N.E. Mail Stop 1090
Washington, DC 20549

Dean Romhilt, Esq.      (Argued)
United States Department of Labor
Office of Solicitor, Room N-2716
200 Constitution Avenue, N.W.
Washington, DC 20210
                  Counsel for Amicus Appellants

                                      O P I N I O N*

RENDELL, Circuit Judge:

       The District Court granted summary judgment for Appellee American DG Energy

Inc. (“ADG”) on all of Appellant Michael Safarian’s claims.1 The central issue on appeal

*
  This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
1
  Safarian brought claims for violation of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank”), violation of the Fair Labor Standards Act
(“FLSA”), violation of New Jersey’s Wage and Hour Law, breach of contract,
                                             2
is whether the District Court correctly held that Safarian was an independent contractor,

and not an employee of ADG. While we affirm in part, we will also vacate and remand

in part because the District Court did not reason through the factors that are important for

determining employment status under the Fair Labor Standards Act (“FLSA”) and New

Jersey state law.

                                      I. Background

       ADG operates in the utility business, and Safarian is an engineer who serviced and

installed ADG’s machines from approximately December 2006 to April 2010. Safarian

worked for ADG Mondays through Fridays, as well as some weekends, working at least

40 hours and sometimes over 50 hours per week. ADG told him which job site to visit

and which services to perform. ADG provided Safarian with materials to install and fix

its devices, business cards, cellphone, beeper, business email address, and clothes with

the company logo. His supervisor described him as ADG’s “boots on the ground” and “a

face of the company.” (App. 914, 715.)

       Safarian originally understood that he was “being hired as a full-time employee,”

but then ADG told him “that it was to the best of the company’s interest to temporarily

put you on as a subcontractor.” (App. 814a.) As a result, Multiservice, a company that

Safarian owned, invoiced ADG and Multiservice paid Safarian. Multiservice invoiced

ADG for Safarian’s time on a per-hour basis. Safarian occasionally brought an assistant

promissory estoppel, violation of the Conscientious Employee Protection Act (“CEPA”),
and violation of public policy under Pierce v. Ortho Pharm. Corp., 84 N.J. 58, 61 (1980).
                                             3
to the ADG job sites, and Multiservice billed ADG for the assistant’s labor as well.

Safarian also took a non-ADG job in Russia for two months.

        While working at ADG sites, Safarian discovered that ADG was performing

certain work without appropriate permits and that ADG was overbilling customers.

Safarian objected to ADG’s permit violations and overbilling practices. Safarian claims

that ADG terminated him in retaliation for these disclosures.

        The District Court noted that in order to bring claims under the federal statute, the

FLSA, or New Jersey state laws, namely the CEPA, Pierce, and the New Jersey Wage

and Hour Law, Safarian must be an employee of ADG. The District Court stated that

determining whether Safarian was an employee required an examination of all the

circumstances, and it cited factors that we have listed as determinative in FLSA cases,

citing Martin v. Selker Bros., 949 F.2d 1286 (3d Cir. 1991). The District Court then

noted that some of the facts of Safarian’s relationship with ADG were “often associated

with employee relationships,” such as the continuity of the relationship, the importance of

Safarian’s work to the business, payment on a per-hour basis, and the provision of

uniforms, tools, and a phone. (App. 9.) The District Court concluded, however, that

Safarian was an independent contractor because he “structured his relationship with

[ADG] as an independent contractor and gained certain benefits that come with this

status.” (Id.) “After experiencing the benefits available through this arrangement,

[Safarian] ‘stumbles’ in an effort to characterize himself as an employee of [ADG].”

(Id.)

                                              4
                                         II. Analysis

         Safarian’s “employment status . . . is a legal conclusion,” and “[t]hus, our standard

of review of the legal determination of employee status is plenary.” Martin, 949 F.2d at

1292.2

         Under the FLSA, “the term ‘employee’ means any individual employed by an

employer.” 29 U.S.C. § 203(e)(1). This statutory definition is “necessarily broad to

effectuate the remedial purposes of the Act.” Martin, 949 F.2d at 1293. In accordance

with this “expansive definition[],” courts must “look to the economic realities of the

relationship in determining employee status under the FLSA.” Id.; see also Tony &

Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 301 (1985) (“The test of

employment under the Act is one of ‘economic reality’ . . . .”) (quoting Goldberg v.

Whitaker House Co-op., Inc., 366 U.S. 28, 33 (1961)). There are six factors to determine

whether a worker is an “employee” under the FLSA:

         1) the degree of the alleged employer’s right to control the manner in which
         the work is to be performed; 2) the alleged employee’s opportunity for
         profit or loss depending upon his managerial skill; 3) the alleged
         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; 6)
         whether the service rendered is an integral part of the alleged employer’s
         business.

Martin, 949 F.2d at 1293 (quoting Donovan v. DialAmerica Mktg., Inc., 757 F.2d
1376, 1382 (3d Cir. 1985)).

2
 In general, “we employ a plenary standard in reviewing orders entered on motions for
summary judgment.” Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 265 (3d Cir.
2014).
                                               5
       Even though the District Court listed these factors, it did not reason through

them. Instead, it focused on the structure of the Safarian-ADG relationship,

noting, for example, that Safarian billed his work for ADG through Multiservice

and that Safarian used Multiservice to claim tax advantages. However, it is the

economic realities of the relationship as analyzed using the Martin factors, not the

structure of the relationship, that is determinative. Indeed, the issue arises because

the parties structured the relationship as an independent contractor, but the caselaw

counsels that, for purposes of the worker’s rights under the FLSA, we must look

beyond the structure to the economic realities. Thus, the dissent’s concern with

the structure is beside the point.3

       In Rutherford Food Corp. v. McComb, 331 U.S. 722, 726 (1947), the

Supreme Court held that meat boners in a factory were employees, even though

the boners owned their own tools, hired employees to assist with the boning

operation, and were not paid hourly. The Rutherford court noted that “[w]hile

profits to the boners depended upon the efficiency of their work, it was more like

piecework than an enterprise that actually depended for success upon the initiative,

judgment or foresight of the typical independent contractor.” Id. at 730. In Tony

and Susan Alamo Foundation, the Supreme Court held that workers—who

testified that they were not employees, did not work for material rewards, and

volunteered for ministry purposes—were employees within the meaning of the

3
  Moreover, I view the analysis of the Martin factors as pointing more toward employee
status for Safarian than our dissenting colleague; but it will be for the District Court to
address these factors in the first instance.
                                              6
FLSA because they were “entirely dependent upon the Foundation for long

periods, in some cases several years.” Tony & Susan Alamo Found., 471 U.S. at

301 (quoting Donovan v. Tony & Susan Alamo Found., 567 F. Supp. 556, 562

(W.D. Ark. 1982)). See also Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376,

1385-86 (3d Cir. 1985) (holding that workers were employees under the FLSA

because they “were not in a position to offer their services to many different

businesses and organizations,” “worked on a continuous basis with DialAmerica

and were able to work only when and if DialAmerica was in need of their

services,” and, consequently, “were economically dependent on DialAmerica”);

Robicheaux v. Radcliff Material, Inc., 697 F.2d 662, 667 (5th Cir. 1983) (holding

that workers were employees because “the fact that [workers] provided their own

insurance coverage, listed themselves as self-employed on their tax returns, and

had their own business cards and letterheads, does not tip the balance in favor of

independent contractor status where, as here, the economic realities of the

situation indicate that the employee depended upon the employer for his

livelihood”); Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311 (11th Cir.

2013) (“This [FLSA] inquiry is not governed by the ‘label’ put on the relationship

by the parties or the contract controlling that relationship, but rather focuses on

whether ‘the work done, in its essence, follows the usual path of an employee.’”)

(quoting Rutherford, 331 U.S. at 729).

       The fundamental point here is that courts must look to the economic

realities, not the structure, of the relationship between the workers and the

                                              7
businesses. Accordingly, we will vacate and remand so that the District Court can

apply the proper test by examining the facts in light of the Martin factors and

weighing them in coming to a conclusion regarding Safarian’s employee status.

We will also vacate the District Court’s grant of summary judgment under CEPA

and Pierce because the District Court did not consider the factors under New

Jersey law for determining whether Safarian was an employee under those laws.

See Pukowsky v. Caruso, 711 A.2d 398, 404 (N.J. Super. Ct. App. Div. 1998)

(listing 12 factors that courts should consider to determine a worker’s status).

       However, we will affirm the District Court’s grant of summary judgment in

favor of ADG on Safarian’s Dodd-Frank,4 breach of contract, New Jersey Wage

and Hour Law, and promissory estoppel claims. We will also affirm the

Magistrate Judge’s decisions regarding discovery. “[W]e review a district court’s

denial of a discovery motion for an abuse of discretion,” and there was no abuse of

discretion here. Lloyd v. HOVENSA, LLC., 369 F.3d 263, 274 (3d Cir. 2004).

                                      III. Conclusion

       Accordingly, we will affirm in part and vacate in part. We will affirm the District

Court’s rulings on the Dodd-Frank, New Jersey Wage and Hour Law, promissory

4
  In order to receive Dodd-Frank whistleblower protection, an employee must report
“conduct which the employee reasonably believes constitutes a violation of section 1341,
1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission,
or any provision of Federal law relating to fraud against shareholders.” 18 U.S.C.
§ 1514A(a)(1). The District Court correctly determined that the misconduct that Safarian
reported did not fall into any of these categories. Amicus Department of Labor expressed
concern that the District Court’s opinion could be read narrowly to imply that Dodd-
Frank whistleblower protection only applies to lawyers, accountants, or auditors who
report shareholder fraud. We do not read the District Court opinion so narrowly.
                                             8
estoppel, and breach of contract claims and its discovery orders. We will vacate the entry

of summary judgment on Safarian’s FLSA, CEPA, and Pierce claims, and remand for

further proceedings.

                                            9
Mikael M. Safarian v. American DG Energy Inc. v. Multiservice Power, Inc.
No. 14-2734

HARDIMAN, Circuit Judge, dissenting in part.

       I join the panel’s opinion except that I disagree with my colleagues’ decision to

vacate and remand for a redetermination of Safarian’s employment status under the Fair

Labor Standards Act. In my view, the record supports the District Court’s conclusion that

Safarian is not an employee of American DG Energy Inc. (ADG) for purposes of federal

law.

       In the seminal case of Rutherford Food Corp. v. McComb, the Supreme Court

explained that “the determination of the [employment] relationship does not depend on

. . . isolated factors but rather upon the circumstances of the whole activity.” 331 U.S.
722, 730 (1947). To help courts in making the employment-status determination, we

enunciated six factors:

       1) the degree of the alleged employer’s right to control the manner in which
       the work is to be performed; 2) the alleged employee’s opportunity for
       profit or loss depending upon his managerial skill; 3) the alleged
       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; 6)
       whether the service rendered is an integral part of the alleged employer’s
       business.

Martin v. Selker Bros., 949 F.2d 1286, 1293 (3d Cir. 1991). After articulating these six

factors, we explained that “[t]here is no single test to determine whether a person is an

employee or an independent contractor for purposes of the FLSA.” Id. We further

cautioned that “neither the presence nor the absence of any particular factor is
dispositive.” Id.

       Here, the District Court noted many of the facts germane to the Martin factors in

the background section of its opinion. For example, the District Court noted that Safarian

is an engineer who worked for ADG five days a week for over three years and was told by

ADG where to go and what services to perform. The Court also indicated that Safarian

was supplied materials by ADG and was paid by ADG through Multiservice Power,

Inc.—a company Safarian owned. See Safarian v. Am. DG Energy Inc., 2014 WL
1744989, at *1 (D.N.J. Apr. 29, 2014). The Court then observed several key facts about

Multiservice, namely, that it billed ADG by invoice, had its own insurance, hired its own

accountant, filed payroll taxes for Safarian, owned its own company vehicle (that Safarian

used), and took advantage of various small business benefits. Id. Finally the Court

discussed some statements Safarian made concerning his employment status in response

to a tax issue and two offers of employment from ADG. Id.

       In its analysis section, the District Court began by rightly noting that the totality of

the circumstances and the Martin factors determine whether a worker is an employee or

an independent contractor. Id. at *2–*3. Though the Court acknowledged that some facts

favor each side, it found that Safarian benefitted from the structure of his relationship

with ADG—by, for example, claiming certain deductions on Multiservice’s taxes—and

thus was an independent contractor.

       According to the majority, the Court’s analysis was overly formalistic. I disagree.

                                               2
Seven decades of precedent emphasize a flexible, totality-of-the-circumstances

employment-status inquiry; or, in other words, exactly the type of analysis conducted by

the District Court.

       The majority’s principal criticism of the District Court is that it didn’t rely on the

Martin factors. As noted above and further explained below, I don’t think it’s necessary

for a court to organize its analysis according to the Martin factors. But even if such

organization were required, the District Court’s opinion passes muster for the reasons that

follow.

       1. Control

       The District Court touched on this factor when it noted that Safarian is an engineer

and that ADG told Safarian where to go and what services to perform. Safarian’s

technical expertise meant that he had a certain amount of discretion, even though ultimate

decisions concerning his work were made by supervisors at ADG.

       2. Opportunity for Profit or Loss

       The second factor weighs in favor of Safarian because, as noted by the District

Court, he was paid (through invoices to Multiservice) on an hourly basis rather than by

each project he worked on.

       3. Investment in Equipment and Helpers

       This factor cuts in ADG’s favor because Multiservice owned various pieces of

equipment that Safarian sometimes used when working for ADG, and Safarian then

                                              3
claimed deductions on Multiservice’s taxes for depreciation of that equipment. Though

not mentioned by the District Court, it is undisputed that Safarian occasionally brought

his nephew to ADG jobs as a helper and then billed ADG (through Multiservice) for his

nephew’s work. App. 291, 302, 351–55.

       4. Special Skill

       Engineering is a profession that requires special skills, as indicated by Safarian’s

undergraduate degree in nuclear science and nuclear engineering and his professional

license to work on gas turbine engines of unlimited horsepower. App. 283–84. Though

the District Court only mentioned that Safarian was an engineer, it was sufficient

shorthand for conveying the fact that he had special skills, especially when noted in

conjunction with his work installing and servicing complex cogeneration systems.

       5. Permanence

       The District Court observed that Safarian worked for ADG for over three years.

       6. Integral to Business

       Finally, the District Court noted that ADG is in the utility business and that

Safarian serviced and installed ADG’s systems. Though the District Court could have

described in more detail how Safarian’s work was integral to ADG, that would have been

unnecessary (as indicated by ADG conceding this factor on appeal).

       While the District Court elucidated facts supporting an analysis under the Martin

test, it candidly stated that “the question of employment status is far from

                                              4
straightforward,” Safarian, 2014 WL 1744989, at *3, and then discussed facts that don’t

neatly conform to Martin’s analytical framework. In my view, two facts make this case

exceptional enough to justify departing from a rigid application of the Martin factors in

order to better reflect the economic realities of the relationship.

       First, Safarian’s employment by Multiservice while performing work for ADG is

unique.1 In fact, neither Safarian nor the majority can point to a single decision where a

court said that the business organization of an alleged employee is irrelevant in

determining employment status under the FLSA. There was thus nothing improper about

the District Court looking to the benefits Safarian received by performing work for ADG

through Multiservice—all the District Court did was force Safarian to “take the bitter

with the sweet.” Arnett v. Kennedy, 416 U.S. 134, 154 (1974) (plurality opinion). The

Tenth Circuit when confronted with a similar situation adhered to a common sense

analysis that is more faithful to Supreme Court precedent than the majority’s approach

here. See Barlow v. C.R. England, Inc., 703 F.3d 497, 506 (10th Cir. 2012) (considering

the implications of a worker performing services for the alleged employer through a

company that the worker owned). The Supreme Court has also indicated that this

consideration is legitimate. See Rutherford, 331 U.S. at 730 (“The group had no business

organization that could or did shift as a unit from one slaughter-house to another.”).

       1
         The District Court expressly discussed the benefits Safarian obtained from
working for ADG through Multiservice, noting, for example, that Multiservice claimed
certain tax deductions.
                                               5
       The second unique feature of this case is that Safarian is an educated professional

who was highly compensated—to the tune of almost $600,000 during his three-plus years

with ADG. If the central concern of the FLSA is preventing employers from taking

advantage of a monopsony, see Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1542 (7th Cir.

1987) (Easterbrook, J., concurring), then applying its protections to Safarian would be

anomalous to say the least. Moreover, while performing work for ADG, Safarian turned

down an employment offer that apparently would have paid well into the six figures.

       For the reasons stated, I join the panel’s opinion in all respects except that I would

affirm the judgment of the District Court on Safarian’s FLSA claim.

                                              6