Labor & Employment Law Daily Wrap Up, EMPLOYEE STATUS—S.D. Tex.: Paralegal was employee of law firm only after she was no longer in business for herself, (Oct 20, 2025)

By Ronald Miller, J.D.

In the Fifth Circuit, courts apply the economic realities test to determine if a worker is an independent contractor or an employee.

A paralegal who worked remotely for a law firm was granted in part her motion for summary judgment as to her status as an employee rather than an independent contractor. A federal district court in Texas found that the degree of control, opportunity for profit or loss, skill and initiative, and permanency factors all supported classifying her as an employee. On the other hand, the fact that she received numerous 1099s throughout her employment and applied for and received a PPP loan explicitly limited to independent contractors weighed heavily in favor of finding that she was an independent contractor. Consequently, the court found that the plaintiff was an employee only with respect to the time she worked after April 1, 2022, when her duties shifted, and she was not in business for herself. Before April 2022, the court found she was an independent contractor under the FLSA (Punger v. Farrah Martinez, PLLC, No. 4:24-cv-2217 (S.D. Tex. Oct. 15, 2025)).

Tax classification. The employer is a personal injury law firm with one principal lawyer. The plaintiff worked as a paralegal for the firm for a period of nearly six years. After she was hired, she filled out a W-9 tax form identifying her tax classification as “Individual/sole proprietor or single-member LLC.” There was no box on the W-9 to indicate she was an employee for tax purposes. Each year during her employment (excluding 2019 and 2022), the employer issued the plaintiff a 1099 tax form detailing her compensation for the year.

Hours worked. When the plaintiff was hired, both parties agreed that she would work from home, and she did in fact work from home during her entire tenure with the firm. The parties also agreed that when she started at the firm, she was assigned work “assignment by assignment.” To report her time for payment when she first started, the plaintiff would email the employer with the number of hours she worked in a week. In 2020 and 2021, the employer requested that she itemize her daily hours by case so it could see how much time she spent working on each case.

Loan application. In 2021, the plaintiff applied for a COVID-related Paycheck Protection Program (PPP) loan, which was approved in April 2021. She testified that when filling out the PPP loan form she indicated “[t]hat [she] received a 1099 from [her] employer.” She further testified, “I did not indicate that I was an independent contractor. That was just the 1099 that I uploaded.”

Workload. In 2021, the plaintiff’s workload increased. At this time, the legal assistant who had been working for the firm left and the plaintiff took on the work the legal assistant had been handling in addition to her own paralegal duties. These additional tasks included handling calendaring deadlines, “administrative tasks,” and “handling intake.” As of 2022, her duties included preparing deposition summaries, pre-litigation matters, demands, medical record summaries, and talking to adjusters and medical providers.

In September 2022, the employer sent an email to the plaintiff that proposed making her a part-time employee, rather than a contractor. According to the plaintiff, after this email there was no other conversation regarding her status. Ultimately, her employment with the firm ended in January 2024.

Wage suit. In June 2024, she filed this lawsuit alleging multiple FLSA violations, including that the employer misclassified her as an independent contractor, rather than an employee and improperly reduced her wages and denied her overtime compensation. Thereafter, she filed a motion seeking summary judgment on all of her claims and the employer’s affirmative defenses.

Status as employee. In the Fifth Circuit, courts apply the economic realities test to determine if a worker is an independent contractor or an employee. This test considers five non-exhaustive factors: (1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker's opportunity for profit or loss is determined by the alleged employer; ( 4) the skill and initiative required in performing the job; and (5) the permanency of the relationship.

Control. With respect to degree of control, the firm argued on that the plaintiff held herself out as an independent contractor who was available for contract services to others. The firm also alleged that the plaintiff had a flexible schedule and decided herself how much time she would spend on projects.

However, the court was not persuaded that during her employment, the plaintiff could work for other law firms. What was important was that while she worked at the firm, she did not work elsewhere, observed the court. Beyond the plaintiff’s Linkedln profile, the firm did not present any evidence to suggest she was actively seeking other law firm clients to provide her services to throughout the nearly six years she was employed there. Further, the firm reviewed all of her work before it was filed.

That the firm closely supervised the plaintiff’s work was evidenced by it checking in with her daily, her attendance at weekly team meetings, and the firm’s review of all of her work product. Further, after the legal assistant left, the plaintiff was asked to take care of the day-to-day tasks that the legal assistant would normally do in addition to her own tasks. Thus, this factor fell in favor of the plaintiff having employee status.

Extent of relative investment. Investments were relatively minor on both sides. Neither party spent more than a few sentences addressing this factor. The plaintiff invested in the software required for Bates stamping and other job duties, while the firm allowed her to use a laptop it owned. The court determined that this factor weighed slightly in favor of the firm’s claim that the plaintiff was an independent contractor but overall carried less weight as neither party’s investments were significant.

Opportunity for profit or loss. Next, courts consider “whether the worker or the alleged employer controlled the major determinants of the amount of profit which the worker could make.” The fact that a plaintiff was free to accept or reject any project supported her classification as an independent contractor. Here, the firm admitted the plaintiff never declined an assignment, which weighed against her potential status as an independent contractor. Moreover, her year-end profits or losses depended solely on the work sent to her by the firm. Thus, the record reflected that while the plaintiff was working for the firm, she did not rely on other law firms to supplement her income. Accordingly, this factor supported classifying the plaintiff as an employee.

Skill and initiative required. The court next examined whether the plaintiff exhibited the type of skill and initiative typically indicative of independent contractor status. While paralegals can provide important and skilled services to law firms and lawyers, the plaintiff had no specialized or advanced paralegal certification or training. Here, the court found that the skill and initiative factor supported classifying the plaintiff as an employee. She possessed the base qualifications of a paralegal but did not possess an advanced degree or certification. Further, she got all of her work from the firm and the employer reviewed and approved it before it was filed.

Permanency of relationship. When evaluating this factor, courts consider whether the plaintiff worked exclusively for the defendant, the total length of the relationship between the parties, and whether the work was on a “project-by-project basis.” Here, the plaintiff worked for the law firm for a length of time just short of six years. She worked exclusively for the firm. Both of these facts demonstrated the plaintiff and the employer had a long term and exclusive relationship, which weighed in favor of a permanency finding.

On the other hand, the parties both stated that the plaintiff’s position was inherently a “project-by-project position,” which would cut against a finding of permanency. Though her employment may have more closely resembled a traditional project-by-project relationship at the beginning of her employment, around April 2022, it morphed into something that more closely resembled an employee being available to work on any task given by the employer. Thus, overall, the permanency factor supported the plaintiff’s classification as an employee, rather than an independent contractor.

Here, the court found that the degree of control, opportunity for profit or loss, skill and initiative, and permanency factors all supported classifying the plaintiff as an employee. On the other hand, the fact that the plaintiff received numerous 1099s throughout her employment and applied for and received a PPP loan explicitly limited to independent contractors weighed heavily in favor of finding that she was an independent contractor.

The court found that the plaintiff was an employee only with respect to the time she worked after April 1, 2022, when her duties shifted, and she was not in business for herself. Before April 2022, the court found she was an independent contractor under the FLSA.

The case is No. 4:24-cv-2217.

Judge: Hanen, A.

Attorneys: Bridget Dale Davidson (Space City Law Firm) for Christie Punger. Mo Taherzadeh (Taherzadeh) for Farrah Martinez, PLLC.

Companies: Farrah Martinez, PLLC

Cases: EmployeeStatus WageHour TexasNews