By: Samantha J. Wood
On Wednesday, June 7, 2017 the U.S. Department of Labor (“DOL”) withdrew its 2015 and 2016 informal guidance letters regarding independent contractors and joint employment, which had been issued by the prior administration.
The DOL’s first guidance letter, which was issued in July 2015 and reiterated the DOL’s focus on misclassification of employees as independent contractors, was borne out of a concern that too many employers were misclassifying workers to avoid certain labor costs. In this guidance, the DOL narrowly interpreted the definition of independent contractor, focusing on the economic dependence of the worker, and downplaying the traditionally-used control test. The DOL stated that employers should consider and weigh the following factors: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his/her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. Minimizing the control factor, the DOL stated that all of the factors should be considered and weighed together in each case, and that no one factor, such as the control factor, should be given undue weight. The DOL advised employers that under this analysis most workers should be classified as employees rather than independent contractors.
The DOL’s second guidance letter, issued in January 2016, took an expansive view in determining joint employment under the Fair Labor Standards Act (FLSA). The DOL differentiated between “horizontal” and “vertical” joint employment, and provided guidance on analyzing each type. The DOL stated that in determining whether horizontal joint employment exists (which analyzes whether two employers are sufficiently related and benefit from an employee’s work), employers should consider factors such as: (1) ownership of the employers; (2) overlapping officers, directors and managers; (3) shared control over operations; and (4) shared supervisory authority of employees. In determining whether vertical joint employment exists (which analyzes the employee’s relationship with the indirect employer and the intermediary employer), employers should consider the “economic dependence” between the employee and the two employers.
The DOL’s withdrawal of its July 2015 and January 2016 guidance letters signifies that, under the new administration, the DOL intends to take a more business-friendly approach in analyzing employer-employee relationships. However, the DOL has stated that the withdrawal of the two guidance letters “does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.” While the DOL may return to the traditional control tests under both the independent contractor and joint employment analyses, the full implication of the DOL’s withdrawals is unclear. Accordingly, until the DOL issues further guidance, employers should continue to consider all relevant factors in determining whether a worker is an employee or an independent contractor and in determining whether a joint employment relationship exists.
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