Guidance: The US Department of Labor's Wage and Hour Division (WHD) recently issued an interpretation of the Fair Labor Standards Act's (FLSA) "economic realities" test used to determine whether an individual is an employee or an independent contractor. Under the economic realities test, six factors must be applied: (1) is the worker an integral part of the employer's business; (2) does the worker's managerial skill affect the worker's opportunity for profit or loss; (3) how does the worker's relative investment compare to the employer's investment; (4) does the work performed require special skill and initiative; (5) is the relationship between the worker and the employer permanent or indefinite; and (6) what is the nature and degree of the employer's control. The WHD emphasized that the final factor—the degree of the employer's control—"should not play an oversized role in the analysis" but rather that "all possibly relevant factors should be considered" in determining a worker's classification as an employee or independent contractor.
Impact: The WHD has repeatedly emphasized in its guidance that most workers will be classified as employees under the FLSA's broad definition. Employers, with the guidance of counsel, should become familiar with the interpretation described above and the examples therein of how the DOL would analyze each of the six factors in the economic realities test. Employers should then review their independent contractor relationships to ensure that those relationships are best positioned to meet the standards set forth in the interpretation in order to avoid charges of FLSA misclassification violations.