DOL Withdraws Guidance on Independent Contractors and Joint Employment

13 JUNE, 2017

DOL Withdraws Guidance on Independent Contractors and Joint Employment

The United States Department of Labor (DOL) recently withdrew guidance for classifying independent contractors and for determining joint employment, two key labor laws important to the hospitality industry. While not legally binding, this guidance withdrawal simplifies how to determine classifications, reduces the presumption of employment for workers (independent contractors), narrows who is considered an employee for liability purposes (joint employment), and reduces justifications for potential enforcement actions.

Note: These rescissions do not resolve the conflicting interpretations of joint employment and independent contractor status under various state laws, but do signal the administration’s steps to curb the broader interpretation of “employment” that has evolved in recent years.

Guidance on Independent Contractors

In 2015, the DOL issued guidance regarding the misclassification of employees as independent contractors for purposes of the Federal Fair Labor Standards Act (FLSA). This guidance outlined the agency’s interpretation of the “economic realities” test for determining whether a worker is an employee (and thus covered by FLSA minimum wage and overtime provisions) or an independent contractor.

The test focuses on the following factors in order to determine whether the worker is economically dependent on the employer (and thus an employee) or in business for him or herself (and thus an independent contractor):

Whether the work performed is an integral part of the employer’s business.

Whether the worker’s managerial skill affects the worker’s opportunities for profit or loss.

The worker’s relative investment compared to the employer’s investment.

Whether work performed requires special business skills, judgment, and initiative.

Whether the worker-employer relationship is permanent or indefinite.

The nature and degree of the employer’s control of the work.

Effective June 7, 2017, this guidance has been withdrawn.

Please be advised that the DOL has not released any further guidance as to how it will determine whether a worker is an employee or independent contractor for purposes of the FLSA. However, the common law rules (which examine behavioral control, financial control, and the type of relationship) used by the IRS to determine whether a worker is an employee or independent contractor, for purposes of the Internal Revenue Code, remain in effect.

Guidance on Joint Employment

Under the FLSA, an employee may be employed by two or more employers (jointly employed). Joint employers, both individually and jointly, must comply with FLSA minimum wage and overtime provisions. Joint employers must combine all hours worked by an employee in a workweek to determine whether he or she worked over 40 hours and is due overtime pay.

In 2016, the DOL issued guidance specifying the most likely scenarios in which it would interpret joint employment to exist:

Where the employee has two or more technically separate but related or associated employers, and each employer benefits from the employee’s work.

Where a worker, as a matter of economic reality, is economically dependent on two employers: an intermediary employer (e.g., staffing agency) and another employer who engages the intermediary to provide workers.

Effective June 7, 2017, this guidance has been withdrawn.

Important: These rescissions do not change the legal responsibilities of employers under the FLSA.

We want you to know that we are actively monitoring developments. To learn more about how this new guidance impacts your organization, please call 703-810-3700 or email [email protected].

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