## Facts

- DialAmerica operated a telephone marketing business that sold magazine renewal subscriptions by calling subscribers supplied by publishers.
- To place renewal calls, DialAmerica needed subscribers’ telephone numbers and used two categories of workers to obtain them: “home researchers” and “distributors.”
- Home researchers picked up subscriber cards listing names and addresses, researched phone numbers at home, and returned completed cards in the prescribed format about a week later.
- Home researchers chose their own hours and how many cards to process, and were paid a fixed piece rate per card.
- Distributors acted as intermediaries by distributing and collecting research cards among home researchers, paying their own expenses, and negotiating the compensation paid to researchers.
- The Secretary of Labor alleged DialAmerica violated the FLSA’s minimum-wage and recordkeeping requirements by classifying both groups as independent contractors rather than employees.

## Issues

1. Whether home researchers were “employees” under the FLSA using the economic-realities test.
2. Whether distributors were “employees” under the FLSA or independent contractors.
3. Whether DialAmerica, as the prevailing party in part, was entitled to attorneys’ fees under the EAJA because the government’s position was not “substantially justified.”

## Decision

- Affirmed in part, reversed in part, and remanded.
- Held home researchers were FLSA employees because the district court misapplied the governing economic-realities analysis.
- Held distributors were independent contractors and not FLSA employees.
- Affirmed denial of EAJA attorneys’ fees because the Secretary’s position was substantially justified.
- Remanded for the district court to determine DialAmerica’s compliance with FLSA obligations as to home researchers.

## Legal Principles

- FLSA employee status turns on the “economic realities” of the relationship, not formal labels or common-law control alone; the core question is economic dependence versus being in business for oneself.
- Relevant, non-dispositive factors include: (1) employer control, (2) opportunity for profit or loss, (3) worker investment, (4) skill required, (5) permanence of the relationship, and (6) whether the work is integral to the business, evaluated under the totality of the circumstances.
- Home-based work and flexible scheduling do not preclude employee status where the worker performs functionally integrated work within the firm’s system, has limited entrepreneurial opportunity, and remains economically dependent on the firm.
- Intermediaries may be independent contractors where they exercise managerial discretion, negotiate compensation, bear expenses, and face meaningful profit-or-loss variability consistent with operating a separate business.
- Under the EAJA, a party is not entitled to fees if the government’s litigation position was “substantially justified,” meaning it had a reasonable basis in fact and law even if the government does not prevail on all claims.

## Conclusion

The Third Circuit applied the FLSA economic-realities framework to a remote-work arrangement, ruling that DialAmerica’s home researchers were employees covered by FLSA protections, while distributors functioned as independent contractors; it also denied EAJA fees because the government’s position was reasonable.


Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376 (3d Cir. 1985)