According to an Article in Law360, on June 5, 2015, David Weil, Administrator of the Department of Labor’s Wage and Hour Division, stated that his Office is preparing to release guidance addressing how to assess whether a worker is properly classified as an independent contractor.  Weil made the announcement at New York University’s 68th Annual Conference on Labor, stating that an “administrator interpretation” was imminent.  Although he declined to give a specific time frame for the issuance of the guidance, he indicated it would be issued early this summer.

Misclassification of employees as independent contractors has been a primary concern for the DOL for several years, as companies are not required to pay unemployment insurance taxes, workers’ compensation premiums, or the employer’s portion of Social Security and Medicare taxes for such workers.  In addition, independent contractors are not protected by most employment laws – such as Title VII and the Fair Labor Standards Act (“FLSA”).  Hence, these workers are not eligible for overtime wages and protections from unlawful discrimination.

Companies are subjected to a patchwork of different tests for determining whether their workers are employees or independent contractors.  The test for federal employment discrimination laws differs from that for the FLSA.  Moreover, states have their own versions of these tests, which can differ (even within the same state) depending on whether they are being used to determine worker classification for purposes of workers’ compensation, wage statutes, unemployment insurance, or other laws.  Typical factors include, among other things, the degree of control exercised by the company over the worker, the worker’s opportunity for profit or loss and investment in his or her business, and the extent to which the work performed by the worker is integral to the employer’s business.

Weil indicated that the WHD’s forthcoming guidance will build off these tests and provide a specific set of criteria for analysis.  For purposes of the FLSA, courts have applied the “economic realities” test, which is designed to determine the economic dependence of the worker on the putative employer.  The test examines the “totality of circumstances” of the work relationship and no one factor in the six-factor test is dispositive.  It appears that the DOL is seeking to amend that standard, while still applying a non-mechanical, “holistic process of assessment.” It is unclear whether the standard will make the analysis any more certain for businesses that engage the services of independent contractors.  Companies that utilize independent contractors need to be aware that the proposed guidance will, at most, address the test as used for FLSA purposes (and perhaps for purposes of other federal laws).  Irrespective of what the DOL issues, companies will still be subjected to different employment classification tests for other state (and perhaps federal) statutes.

The DOL’s practice of issuing “administrative interpretation” began in March 2010, with the issuance of Administrator’s Interpretation No. 2010-1, which concluded that employees who perform the “typical” duties of a mortgage loan officer employee do not satisfy the duties requirements of the FLSA’s administrative exemption. The Interpretation was significant not only because it withdrew a 2006 opinion letter that reached the opposite conclusion—that certain mortgage loan officer employees qualified for the administrative exemption—but also because it established a new procedure for the DOL to provide broad interpretive guidance. The DOL’s current procedure is a significant departure from its practice prior to 2010, under which it issued guidance in the form of rules and opinion letters limited to the specific facts presented to it in each request. On March 9, 2015, the Supreme Court issued a decision that such government agency “interpretive rules” are not subject to notice-and-comment rulemaking, but cautioned that those same rules do not carry the “force and effect of law.”

We will, of course, keep you updated on further developments on the independent contractor guidance as they become available.  In the meantime, companies should continue to scrutinize their independent contractor relationships to ensure that they will survive scrutiny under the myriad of tests applicable to their workers.