DOL Issues Independent Contractor Guidance

Last week, the U.S. Department of Labor (DOL) issued Administrator’s Interpretation 2015-1: The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors. The document provides guidance for determining whether a worker is properly classified as an independent contractor under the Fair Labor Standards Act.

The purpose of the guidance is to advance the DOL’s interpretation of the “economic realities” test used to determine whether a worker is an employee for purposes of the Fair Labor Standards Act (FLSA) in the hope that courts will apply it.

As reported recently, not all courts have been willing to adopt the DOL’s test, which probes the degree of economic dependence of the worker on the organization under scrutiny. If the worker is economically dependent on the organization, the worker is properly an employee, not an independent contractor. The test includes six factors:

  • the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed;
  • the alleged employee’s opportunity for profit or loss depending upon his managerial skill;
  • the alleged employee’s investment in equipment or materials required for his task, or his employment of workers;
  • whether the service rendered requires a special skill;
  • the degree of permanency and duration of the working relationship; and
  • the extent to which the service rendered is an integral part of the alleged employer’s business.

The guidance states the economic realities test should be guided by the FLSA’s definition of the term “employ,” which means to “suffer or permit to work.” DOL Administrator David Weil states in the guidance that this standard was intended to ensure broad statutory coverage.

“Misclassified employees often are denied access to critical benefits and protections to which they are entitled, such as minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces,” Weil wrote. “Employee misclassification generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds. It hurts taxpayers and undermines the economy.”