U.S. Dept. of Labor Withdraws Guidance on Independent Contractors and Joint Employment

Independent Contractors

In July 2015, the Department of Labor (“DOL”) issued informal guidance on classification of independent contractors. The guidance interpreted six major components of the “economic realities test” used to determine whether or not someone is classified as an employee. The factors are meant to guide employers in gauging the degree of economic dependence a worker has on the entity for which they work. However, the DOL’s former guidance went a step further, stating that “only … workers who operate as independent businesses … are independent contractors.”

Even though the DOL has withdrawn this informal guidance, the “economic realities test” is still used when evaluating employee status. Thus, employers must still thoroughly evaluate and be cautious when classifying independent contractors, in large part, because misclassification can lead to significant employer liability.

Joint Employer Status

In January 2016, the DOL issued informal guidance on joint employer status. It provided a broad approach to determining when employees may be considered jointly employed by two or more employers.  In the guidance, the DOL also admonished courts for applying the common law “control test” to determine joint employer status, which looks to the amount of control an employer exercises over an employee, rather than focusing on the criteria it singled out in the statutes and regulations associated with the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.

Although the DOL’s guidance is not binding on courts, it was something courts would consider. By removing this guidance, it also signals a possible shift in the DOL’s enforcement practices. Interestingly, the National Labor Relations Board (“NLRB”) issued a ruling in 2015 in the Browning-Ferris case that defined a joint employer relationship as one where the employer either exercises control or has the right to exercise control over the work of an employee. Thus, even though the DOL appears to be taking a step back, employers must still be cautious about potential joint employer relationships.  Moreover, removal of the guidance does not change existing case law on this topic.

 Action Items

1. Review employee and independent contractor statuses with labor counsel for compliance.
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