DOL Issues First Trump-Era Guidance on Independent Contractor Classification
President Trump’s Department of Labor has finally waded into the waters of worker classification under the Fair Labor Standards Act of 1938 (FLSA), ch. 676, 52 Stat. 1060 — and the result is business-friendly.
On April 29, 2019, the Department of Labor (DOL) issued an opinion letter addressing the classification of workers as independent contractors versus employees under the FLSA. DOL Wage & Hour Op.Ltr. No. FLSA2019-6 (Apr. 29, 2019). This is the first opinion letter issued by the Trump Administration on the issue of independent contractor classification. While DOL opinion letters are not binding on courts, they do provide employers with a good-faith reliance defense for actions that may otherwise constitute violations of the FLSA.
In the April opinion letter, the DOL does not question the longstanding principle that the employer-employee relationship is determined under the FLSA by economic dependence of the worker on the employer. However, the DOL now identifies different factors than those last published in 2015 by the Obama Administration (which the Trump Administration rescinded in 2017) to determine whether a worker is economically dependent. These new factors are
the nature and degree of the potential employer’s control;
the permanency of the worker’s relationship with the potential employer;
the amount of the worker’s investment in facilities, equipment, or helpers;
the amount of skill, initiative, judgment, or foresight required for the worker’s services;
the worker’s opportunities for profit or loss; and
the extent of integration of the worker’s services into the potential employer’s business. FLSA2019-6 at 4.
The DOL notes that encompassed within the above factors is the worker’s degree of independent organization and operation.
The DOL further opines that it will not determine employee status by simply counting the number of factors met, but rather by weighing the factors to answer the ultimate inquiry of whether a worker is engaged in business for himself or herself or is dependent on the business to which he or she renders service. In addition, the determination of employee versus independent contractor will not depend on isolated factors, but rather on the circumstances of the whole activity.
This opinion letter marks a departure from the Obama-era DOL, which used the “economic realities” test to determine whether a worker was an employee. That prior test factored in considerations such as whether the worker’s managerial skill affected the worker’s opportunity for profit or loss and whether the work performed was an integral part of the company’s business, to ultimately rely more on the worker’s subjective day-to-day experience in deciding whether the individual was an employee. The DOL’s new interpretation is being viewed as more business-friendly than the 2015 guidance, which weighed in favor of deeming workers “employees.” In fact, the April 2019 opinion letter states that while the FLSA has a broad scope of coverage, “it is not so broad that all workers are caught within its reach — far from it.” FLSA2019-6 at 7. The DOL opines that recognizing this limitation protects the freedom of workers to operate as independent contractors and remain outside the FLSA’s scope.
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