On July 15, 2015, the U.S. Department of Labor's Wage
and Hour Division ("DOL") issued Administrator's
Interpretation No. 2015-1, providing guidance to employers for
determining whether workers are "employees" under the
Fair Labor Standards Act ("FLSA"). Although the guidance
is lengthy, it does little to alter the DOL's well-known
position on worker classification. In a blog post accompanying the
release of the guidance, Dr. David Weil, administrator of the Wage
and Hour Division, underscored the DOL's intent to provide an
informational resource for employers: "We believe in providing
employers all the information that they need to comply, and this
document, with its discussion of the relevant law and inclusion of
numerous examples, will help employers."
Although the DOL continues to maintain an active enforcement
agenda, in particular through its ongoing Misclassification
Initiative, the positions expressed in its guidance do not
represent a major sea change. In the DOL's view, the FLSA's
definition of "employ" should be interpreted broadly. As
the guidance reiterates, the DOL believes that many employers fail
to heed or understand the scope of this definition, leading to
frequent misclassification of workers.
None of this is new. Still, although the guidance is essentially a
restatement of a relatively long-standing position, its publication
alone has caused a stir. Companies may expect increased scrutiny
and litigation as a result. This scrutiny and litigation will
likely be focused on the individualized engagement of independent
contractors by companies, particularly companies that engage
workers who perform duties similar to a company's employees on
a long-term basis.
It is unclear what prompted the DOL to issue this latest worker
classification guidance. Only five such guidance letters have been
published since 2010, and the previous four concerned far more
discrete topics. Dr. Weil explained that the most recent guidance
is part of the DOL's "robust education and outreach
campaign." For employers that are unfamiliar with worker
classification, the guidance does provide a useful summary of the
DOL's position on what legal test should be used and how the
factors of the test should be applied. In addition to contending
that the definition of "employ" is broad and renders most
workers "employees" under the FLSA, the DOL explains that
it believes the ultimate inquiry is whether the worker is
economically dependent on the employer (and thus an employee) or
truly in business for himself or herself and economically
independent from the employer (and thus an independent
contractor).
The guidance also discusses the six-factor "economic
realities" test that the U.S. Supreme Court developed long ago
to consider when determining whether a worker is an employee:
- Whether the work is an integral part of the employer's business;
- Whether the worker's managerial skill affects his or her opportunity for profit or loss;
- How the worker's relative investment compares to the employer's investment;
- Whether the work performed requires special skill and initiative;
- Whether the relationship between the worker and the employer is indefinite; and
- The nature and degree of the employer's control over the worker.
In the DOL's view, applying the economic realities factors
"is guided by the overarching principle that the FLSA should
be liberally construed to provide broad coverage for workers."
The guidance continues with a detailed discussion of each of the
six factors, providing case citations and examples.
The guidance reminds employers that the actual working relationship
between a worker and an employer, rather than the worker's
title or an agreement between the parties, determines whether the
worker is an employee. Moreover, each factor should be examined; no
single factor is determinative. In other words, the outcome of the
economic realities test "must be determined by a qualitative
rather than a quantitative analysis." While it is true that
courts generally apply all of the "economic realities"
test factors in FLSA cases, the DOL's guidance fails to mention
that some federal courts have placed particular weight on one part
of the test—the nature and degree of the employer's
control over the worker—an approach that the DOL's
interpretation clearly rejects.
One noteworthy remark in the DOL's lengthy guidance is
contained in a footnote. There, the DOL remarks that it has seen an
increasing number of instances where employees were misclassified
as something other than "independent contractors," such
as "owners," "partners," and "members of
limited liability companies." In light of the Equal Employment
Opportunity Commission's ongoing investigations into several
large partnerships, in which a central issue concerns whether
partners should be considered employees for purposes of age
discrimination lawsuits, this note appears significant. Still, even
if the DOL plans to direct its classification efforts in this way,
it is likely that most owners, partners, etc. would fall within an
exemption to the FLSA.
Significance for Employers
While the guidance does little more than provide a detailed
discussion of the economic realities test and reemphasize the
DOL's well-known position that independent contractors are
often misclassified, the guidance also serves as another reminder
that worker misclassification remains high on the DOL's list of
enforcement priorities.
At the same time, the guidance, as well as Dr. Weil's remarks
on its publication, do not appear to signal a major policy shift
within the DOL. Employers should remain vigilant in their
classification efforts and carefully assess the "economic
realities" of their relationships with independent
contractors, but they should also recognize that the guidance
represents more of the same, rather than something new, with
respect to DOL worker classification enforcement efforts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
