Donovan v. Dialamerica Marketing, Inc.

Facts

D is a telephone marketing firm that operates in twenty states. A major aspect of D's business is the sale of magazine renewal subscriptions by telephone to persons whose subscriptions have expired or are near expiration. Under this 'expire' program, publishers supply D with the names and addresses of subscribers, and D locates phone numbers for these subscribers and telephones them in an effort to sell renewal subscriptions. D employed in-house researchers who would find numbers by consulting telephone books and calling directory-assistance operators. D initiated its home-researcher program as a method of increasing its capacity to locate needed telephone numbers. Persons would travel to D's office in Teaneck, N.J., and pick up cards, each of which contained the name and address of a subscriber whose telephone number was needed. They would then take these cards home, use telephone books or operators to locate the telephone numbers of the persons listed, write the numbers on the cards in a specified manner, and then return the completed cards to D's office. The home-research program remained in effect until 1982 when it was discontinued. D sought researchers by placing newspaper advertisements, the last of which ran in May 1979. After that date, prospective home researchers approached D after learning about the program from others. Those desiring such work met with an officer of D. D never rejected anyone who applied for such work, although it did subsequently discharge some home researchers who performed their work inadequately. A worker was given an initial box of 500 cards to be researched. The worker was expected to set up an appointment to return the cards one week later. Appointments were designed to prevent too many of the home researchers (generally women some of whom brought their small children along) from being present in the office at one time. Home researchers were free to choose the weeks and hours they wanted to work and the number of cards they wished to research subject to a 500-card minimum per batch and to the sometimes-limited availability of cards. D required the use of a black ink or Flair pen and sold such pens to the researchers. The researchers were required to place their initials and the letter 'H' (for home researcher) on each card they completed. When DialAmerica installed a machine to read and process the completed cards automatically, DialAmerica required that the home researchers place numbers on the cards by writing them in ink around dots pre-printed on the cards. Home researchers were instructed not to wear shorts when they came to the office to pick up or deliver cards. D did not require the home researchers to keep records of the hours that they worked. Six or seven of the home researchers acted as distributors picking up and delivering the cards of other home researchers. In some cases, they recruited new home researchers and instructed them as to the proper method of completing the cards. D instructed the distributors to require each of their distributees to sign the same independent contractor's agreement that was given to the other home researchers. D retained copies of these signed agreements. Later in the program, D chose not to require distributees to sign the agreements, and it discarded the ones that it had in its possession. D paid its home researchers five cents for every completed telephone-number card. At the same time, D was paying its in-house researchers the minimum-wage hourly rate. The piece rate paid to home researchers was eventually raised to seven cents and then to ten cents per card. One week after a home researcher had returned a group of cards, D would make payment to that researcher of a check equal to the piece rate times the number of cards completed. D made no deductions from these checks. Distributors were paid a lump sum equivalent to one cent more than the going piece rate for every completed card they returned to D, regardless of whether the card had been completed by them or their distributees. Initially, D instructed the distributors to pay distributees the going piece rate and to keep the remaining one cent per card for themselves. Eventually, D gave no instructions as to the amount to be paid to distributees, allowing the distributors to negotiate their own piece rates. P filed a complaint alleging that D was willfully compensating the home researchers and distributors at a rate below the minimum wage, in violation of 29 U.S.C. §§ 206, 215(a)(2), and that D had willfully failed to keep adequate records of its employees' wages, hours, and other conditions of employment, in violation of 29 U.S.C. §§ 211, 215(a)(5). D claimed its home researchers and distributors were not 'employees' under the FLSA. On June 1, 1982, D discontinued its home-researcher program as a result of the filing of this lawsuit. After a two-day evidentiary hearing on the extent to which home researchers and distributors were dependent on D, the extent to which they had an opportunity for profit or loss; the extent to which they exercised initiative, business judgment, or foresight in their activities; the extent of any financial investment in conjunction with their work for DialAmerica; and the extent to which the services provided by the home researchers and distributors were an integral part of d's business, the court granted D’s motion for summary judgment. P appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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