Department of Labor Sends Out Warning To Employers With Independent Contractors


By: Marty Heller and Neil Wilcove

For the last few years, we have been warning employers that classifying workers as “independent contractors” is a risky proposition.  Now, the Department of Labor again has sent a shot across the bow, this time in the form of an “Administrator’s Interpretation,” found here. In this guidance, the Department of Labor further expands upon its previous position that the Fair Labor Standards Act’s definition of employ (which is defined as “to suffer or permit to work”) should be interpreted very broadly.

Traditionally, federal courts consider the following factors when reviewing whether a worker may be considered an independent contractor: (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 or 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.

In the recent guidance, the Department of Labor clarified that, at least according to them, “the ultimate inquiry under the FLSA is whether the worker is economically dependent on the employer or truly in business for him or herself. If the worker is economically dependent on the employer, then the worker is an employee. If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor.”

The guidance goes on to narrowly interpret all of the 6 factors in favor of finding that the worker is an employee, and provides several examples that plaintiffs’ attorneys are sure to enjoy. For example, the Department of Labor opined that framing carpenters working for a construction company likely are employees because framing homes is “integral” to the construction company’s business.

In sum, the examples in the guidance reasonably lead to the conclusion that only workers who truly operate their own, independent business may properly be classified as independent contractors (i.e., pay for their own advertising, materials, equipment and seek out their own clients, etc.). Finally, perhaps in an attempt to jump start the plaintiffs’ bar, the parting shot states “the correct classification of workers as employees or independent contractors has critical implications for the legal protections that workers receive, particularly when misclassification occurs in industries employing low wage workers.”

Employers should take the time to carefully review each and every position that is classified as an independent contractor, as this guidance reminds us that the cards are stacked against employers.

 



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