What Happened?
On June 7, 2017, Secretary of Labor Alexander Acosta announced that the US Department of Labor (“DOL”) has withdrawn two guidance documents on independent contractor misclassification and joint employment that had been issued during the Obama Administration.
As an overview, an administrative agency has authority to interpret federal laws under its jurisdiction. To that end, an agency will issue a guidance document that outlines the federal law and the agency’s interpretation of that law. The agency guidance is not law, but courts will typically give an agency’s interpretation of the law great weight and careful consideration.
In 2015, DOL issued guidance on properly classifying independent contractors. DOL’s guidance was an effort to reduce the number of employees that it believed were misclassified as “independent contractors.” One goal of the DOL is to prevent an employer from classifying an employee as an independent contractor to avoid paying overtime required under the FLSA. In 2016, DOL issued additional guidance expanding its interpretation of “joint employment” (where two or more businesses jointly employ a worker, such as an employment agency and that agency’s business customer). DOL’s expansive interpretation of joint employment was intended to provide the agency with greater flexibility in determining whether two or more entities could be considered joint employers under the Fair Labor Standards Act (“FLSA”), such that both could be held liable for violations.
What Does This Mean for Employers?
DOL’s withdrawal of the guidance likely means a return to the analysis of these topics in effect prior to the issuance of the DOL’s guidance.
Under the “pre-guidance” rules, an individual is an employee and not an Independent Contractor if:
- The employer has a high degree of control over the manner in which the alleged employee’s work is performed;
- the employer provides materials and equipment for the individual to complete his task;
- the individual’s services requires special skill and knowledge;
- the working relationship is long-term;
- the service rendered is an integral part of the employer’s business.
Under the “pre-guidance” rules, an entity may be a joint-employer if:
- The employer has authority to hire and fire employees of the contractor or temporary agency;
- The employer has authority to create work rules and assignments; set employees’ conditions of employment such as compensation; offer benefits; and create work schedules;
- The employer supervises the employees, including performance review and discipline;
- The employer has actual control of the employee’s records including payroll, insurance, and taxes.
DOL’s withdrawal of each respective guidance may be viewed as a “win” for employers in that it may lead to a more “business friendly” interpretation of the FLSA under the Trump administration. However, employers must remain vigilant in their efforts to comply with federal law as the DOL’s actions do nothing to change employers’ obligation to comply with the FLSA.
If you have questions about whether you have properly classified an individual as an independent contractor or are concerned about protecting yourself from joint-employer liability, contact a member of Stock and Leader’s Employment Group.