Interpreting “Employee” 23:47, June 24, 2016

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Interpreting “Employee”

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The Labor Department issues a new guide explaining when workers qualify as “employees” or “independent contractors”

The US Department of Labor (DOL) issued a new guide to help distinguish when workers qualify as “employees” or as “independent contractors” under the Fair Labor Standards Act (FLSA); see Administrator’s Interpretation No. 2015-1.

The guide is intended to reduce the misclassification of workers, a problem that has plagued various occupations including:

According to Administrator’s Interpretation No. 2015-1, anyone who is “suffered or permitted to work” by an employer is a FLSA employee. And, the DOL explains:

In order to make the determination whether a worker is an employee or an independent contractor under the FLSA, courts use the multi-factorial “economic realities” test…. A worker who is economically dependent on an employer is suffered or permitted to work by the employer.

According to the DOL blog:

[T]he goal of the economic realities test is to determine whether a worker is economically dependent on the employer (and is therefore an employee) or is really in business for him or herself (and is therefore an independent contractor).

The new guide says factors to consider are:

  • whether the work is an integral part of the business
  • whether the worker’s profit or loss depends on the worker’s managerial skill
  • the relative investments of the employer and the worker
  • whether the work requires special skills
  • the permanency of the relationship
  • the degree of control exercised or retained by the employer

Ultimately, the new guide concludes, “in view of the expansive definition of ’employ’ under the Act, most workers are employees under the FLSA.”

In his review of the DOL guide, lawyer-blogger Daniel Schwartz commented “[T]his type of analysis isn’t all that new or surprising. Courts have been using it for a while. … [T]he guidance is really just another reminder that the use of these contractors continues to be heavily disfavored by government agencies.” Similarly, Jackson Lewis lawyer Noel Tripp said the guide is designed to “send a strong signal that the DOL will look skeptically on any claim of independent contractor status.”

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