On Wednesday, July 15, 2015, the U.S. Department of Labor (DOL) issued guidance regarding the standard for classifying workers as employees or as independent contractors. The DOL focused primarily on the Fair Labor Standards Act’s (FLSA’s) definition of employ as “to suffer or permit to work.” In laying out its position, the DOL questioned the strict common law “control test” that had been recognized widely before the enactment of the FLSA and instead advised that an entity “suffers or permits” an individual to work if, “as a matter of economic reality,” the individual is dependent on the entity.
The “economic reality” analysis of whether a worker is an employee is a somewhat fluid, multi-pronged test that typically includes six factors: (1) whether the work performed is an integral part of the employer’s business; (2) whether the worker’s managerial skill affects the worker’s opportunity for profit or loss; (3) how the worker’s relative investment compares to the entities investment; (4) whether the work performed requires special skill and initiative; (5) whether the relationship between the worker and the employer is permanent or indefinite; and (6) the nature and degree of the entity’s control over the worker. The DOL takes the position that no single factor — including control — is determinative and no single factor should be over-emphasized. Instead, the DOL’s position is that the ultimate query is whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee).
Correct classification obviously has important implications on whether individuals are entitled to minimum wage, overtime compensation, and other possible employment benefits. While the six-factor economic reality test provides some guidance, the DOL’s focus on the “broader concept of economic dependence” potentially has clouded the waters. Further, while government agency interpretive rules do not carry the force and effect of law, parties are certain to argue about whether courts should give deference to the DOL’s guidance.
A copy of the DOL release is available here.
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