On June 16, 2016, the Virginia Employment Commission (VEC) became the 31st state agency to sign a Partnership Agreement with the Wage and Hour Division of the Department of Labor (DOL) regarding the misclassification of independent contractors. By signing the Agreement, DOL and VEC will now collaborate in providing employers with compliance information and coordinating investigations. The Agreement is part of DOL’s broader national mission to decrease misclassification of employees as independent contractors.
The stated purpose of the Agreement is to establish a “collaborative relationship to promote compliance with laws of common concern” between DOL and Virginia concerning independent contractors. The Agreement describes the goal of the two agencies as “providing clear, accurate, and easy-to-access outreach to employers, employees, and other stakeholders and of sharing resources and enhancing enforcement by conducting coordinated investigations and sharing information[.]” The Agreement provides for VEC and DOL to (1) “conduct joint investigations periodically in the Commonwealth of Virginia”; (2) “coordinate their respective enforcement activities and assist each other with enforcement”; and (3) “make referrals of potential violations of each other’s statutes.” In other words, by entering into the Agreement, VEC is agreeing to assist DOL with investigations related to the misclassification of independent contractors, to provide training regarding the same to employers in the state, and to work with DOL on enforcement of such laws as the Fair Labor Standards Act, the Family and Medical Leave Act, the Migrant and Seasonal Agricultural Worker Protection Act, the Davis-Bacon Act, and the Service Contract Act.
The Agreement is part of DOL’s larger assault on independent contractor classification under the FLSA. In 2015, DOL issued an Administrator’s Interpretation regarding the application of the FLSA’s “suffer or permit” standard to workers who are misclassified as independent contractors. In that opinion, and as previously discussed here, DOL narrowed the definition of Independent Contractor and instructed employers to apply the “economic-realities” test to determine appropriate classification. The factors of that test include:
- the extent to which the work performed is an integral part of the employer’s business;
- the worker’s opportunity for profit or loss depending on his or her managerial skill;
- the extent of the relative investments of the employer and the worker;
- whether the work performed requires special skills and initiative;
- the permanency of the relationship; and (6) the degree of control exercised or retained by the employer; and
- the degree of control exercised or retained by the employer.
No one factor controls and the factors should be considered in totality to determine whether a worker is economically dependent upon the employer and thus considered an employee.
Under this Agreement, employers in Virginia can expect increased audits of independent contractor relationships and a sharing of information between state and federal agencies that will increase exposure if misclassification is found.
Arent Fox’s Labor & Employment Group will continue to monitor developments in this area.