On July 15, 2015, the Department of Labor (DOL), through its Wage and Hour Division, issued its first Administrator’s Interpretation (AI) of the year, and in more than a year (2015-1). AI 2015-1 focuses on the always complex issue of independent contractor versus employee classification under the Fair Labor Standards Act (FLSA). The DOL has not held back, at all. This AI makes clear the DOL has little tolerance for the concept of independent contractors, stating unequivocally that most workers “are employees under the FLSA’s broad definitions.” Although an AI does not have the same legal impact and effect as agency regulations, this AI will no doubt become the hot topic of FLSA process and litigation.
In recent years, the DOL has focused its efforts on investigating misclassification as a priority item. To this point, Administrator Weil writes misclassification can deprive individuals of “important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation[.]” “Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.”
The DOL, acknowledging that the FLSA broadly defines “employ” as “to suffer or permit to work,” jumps onto the court-developed economic realities test bandwagon because of its liberal reach. In the AI, Weil provides guidance on each of the six factors in the economic realities test. Noting that economic dependence is the key, the economic realities test “focuses on whether the worker is economically dependent on the employer or in business for him or herself.” “A worker who is economically dependent on an employer is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of ‘employ’ under the Act, most workers are employees under the FLSA.” AI 2015-1 lists the six factors as follows:
• Is the work an integral part of the employer’s business?
• Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
• How does the worker’s relative investment compare to the employer’s investment?
• Does the work performed require special skill and initiative?
• Is the relationship between the worker and the employer permanent or indefinite?
• What is the nature and degree of the employer’s control?
AI 2015-1 emphasizes that all factors are to be considered and there is no one factor, including the control factor, that is determinative of whether a worker is an employee. These factors are not to be mechanically applied, “but with an understanding that the factors are indicators of the broader concept of economic dependence.”
While not a new concept in the realm of independent contractors, AI 2015-1 reminds that a “label” given to a worker is not determinative. “Thus, an agreement between an employer and a worker designating or labeling the worker as an independent contractor is not indicative of the economic realities of the working relationship and is not relevant to the analysis of the worker’s status.”
Businesses with independent contractors should take this document as the kick needed to conduct any audits to ensure workers classified as independent contractors truly are. This AI will have everyone questioning the label.