Following the U.S. Department of Labor’s recent release of its Memorandum of Understanding (“MOU”) with the Alabama Department of Labor, employers should not rest easy simply because they classify their workers as independent contractors. DOL’s Misclassification Initiative seeks to prevent, detect and remedy employee misclassification and it has entered similar agreements with 15 other states to further its mission.

Unlike employees, independent contractors are not subject to several laws, including the Family and Medical Leave Act, Fair Labor Standards Act, and relevant tax, workers’ compensation, and unemployment laws. By signing the MOU, the U.S. Department of Labor and the Alabama Department of Labor have renewed their commitment to ensure that all workers are properly classified as independent contractors or employees depending on a number of factors including, but not limited to, the following:

  • the extent to which the worker’s services are an integral part of the employer’s business;  
  • the permanency of the worker/employer relationship;
  • whether the worker uses his own tools or equipment when performing the job;
  • the nature and degree of control by the employer;
  • the worker’s opportunity for profit and loss; and
  • the level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise (e.g., Does the worker perform routine tasks requiring little training? Does the worker advertise independently via yellow pages, business cards, etc.? Does the worker have a separate business site?).

According to the MOU, mandating proper classification of workers will protect the rights of America’s workforce, regardless of whether an employer chooses to misclassify its employees as independent contractors. Mandating proper classification will also level the playing field so that employers who refuse to play by the rules do not receive an unfair competitive advantage. To enforce the mandate, the MOU authorizes coordinated investigations between the U.S. Department of Labor and the Alabama Department of Labor based on an employer’s business operations in designated priority industries (which have yet to be defined). The departments of labor will also cooperate and coordinate with one another in criminal investigations, provide testimony to support exchanged information, and notify each other of requests for information affecting shared data under Freedom of Information laws.

So what’s the bottom line? The U.S. and Alabama Departments of Labor have garrisoned a united front when it comes to exposing employees in independent contractor clothing. As a result, employers should not rely on formulaic documents and contracts that deem workers independent contractors if those workers do not truly fit the profile of independent contractors. Consider yourself warned:  misclassification could result in civil and criminal penalties.