• Breaking News: U.S. Department of Labor Issues New Guidance on “Employee vs. Independent Contractor” Misclassification
  • July 30, 2015 | Authors: Tammye Campbell Brown; Stephen J. Carmody; Christopher R. Fontan; Claire W. Ketner; Lauren O. Lawhorn
  • Law Firm: Brunini, Grantham, Grower & Hewes, PLLC - Jackson Office
  • On Wednesday, July 15, 2015, the U.S. Department of Labor (DOL) issued new guidance targeting employer misclassification of employees as independent contractors. Authored by David Weil, the head of the DOL’s Wage and Hour Division, the 15-page guidance (termed an “administrator’s interpretation”) states that, according to the DOL, “most workers” in the United States qualify as “employees” under the Fair Labor Standards Act (FLSA).

    As pointed out in the guidance opinion, employees that are improperly labeled as “independent contractors” do not receive certain statutory protections under the FLSA, such as guaranteed minimum wages and overtime pay. These are in addition to other benefits provided only to “employees” by employers that are not governed by the FLSA—such as health benefits, workers’ compensation protections and unemployment benefits.

    Under the FLSA, the key question in determining whether one is an “employee” versus an “independent contractor” rests on the question of economic dependence. Accordingly, the DOL utilizes the six factor “economic realities” assessment that guide employers—and DOL investigators—in determining if an individual is truly in business for himself/herself (and thus, an independent contractor), as opposed to being “economically dependent” on the employer (and thus, an employee):
    1. Is the work an integral part of the employer’s business?
    2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
    3. How does the worker’s relative investment compare to the employer’s investment?
    4. Does the work performed require special skill and initiative?
    5. Is the relationship between the worker and the employer permanent or indefinite?
    6. What is the nature and degree of the employer’s control?
    The new guidance stresses that the six factor assessment should be applied “broadly,” based on the FLSA’s broad scope of employment and work standard. Supporting its interpretation for broad coverage, the DOL specifically stressed that Congress previously rejected a more narrow “common-law control” test when drafting the FLSA. Additionally, the DOL opined that the factors shouldn't be “analyzed mechanically or in a vacuum” and no one factor should get too much weight.

    “Whether a worker is an employee under the [FLSA] is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make,” Weil said Wednesday in a blog post. According to Weil, the DOL “supports the use of legitimate independent contractors— who play an important role in our economy—but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses."

    The new administrator's interpretation comes two weeks after the DOL unveiled a proposed rule that would broaden federal overtime pay regulations to cover nearly millions of additional workers, resulting in more than double the minimum salary threshold required to qualify for a “white collar" exemption under the FLSA. The proposed rule and new administrator’s interpretation likely signal the DOL’s intent to ramp-up its FLSA audit and enforcement for employers beginning in 2016.