On June 7, 2017, Labor Secretary Alexander Acosta announced that the U.S. Department of Labor (DOL) has withdrawn two informal guidance documents on independent contractor misclassification and joint employment, both issued during the Obama administration.
The DOL issued guidance in 2015 that outlined an “economic realities” test seeking to limit misclassification of employees as independent contractors. In 2016, the DOL issued additional guidance explaining its expansive interpretation of joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA)—again outlining a test to determine whether two or more entities could be considered joint employers for purposes of those statutes.
What Happens Now?
The withdrawal of these two administrative interpretations is viewed as a win for business groups, who argued the guidance—which brought more employees under the FLSA’s protection—would increase litigation over misclassification and joint employment issues. However, in its news release the DOL’s Wage and Hour Division stated that its withdrawal of these two administrator documents “does not change the legal responsibilities of employers” under federal wage and hour laws and that it will “continue to fully and fairly enforce all laws within its jurisdiction,” including the FLSA and MSPA.
In the absence of these guidance documents and the various test factors delineated by the DOL, courts likely will revert to pre-guidance interpretations of independent contractor classification and joint employment as determined by courts in each jurisdiction.
Independent Contractor Misclassification
In the misclassification analysis context, courts apply a traditional economic realities test to determine whether an individual is an employee under the FLSA. While no single factor is determinative and the entirety of the relationship must be examined, most, but not all courts generally consider some combination of the following factors when applying the economic realities test:
- the degree of control exercised by the alleged employer over the manner in which the work is to be performed;
- the alleged employee's opportunity for profit or loss and investment in the business;
- the degree of skill and independent initiative required to perform the work;
- the permanence or duration of the working relationship;
- the extent to which the work is an integral part of the business; and
- the extent of the relative investments of the employer and worker.
Courts have interpreted the economic realities factors vastly differently depending on the facts and jurisdiction, or even within the same jurisdiction. Absent the DOL’s guidance, courts will continue to use the traditional FLSA-specific (and in some cases, narrower) economic realities test to perform factor-by-factor examinations and conduct situational and fact-intensive analyses.
To determine whether entities are joint employers for purposes of the FLSA, the various federal judicial circuits use different tests. The following chart outlines which tests and factors are generally used in the various circuits. Despite the differences in these tests, courts have emphasized, with near-unanimity, that the inquiry is a flexible one, that all factors need not be satisfied in a given case, and that the central question is the economic realities of the situation at issue. Therefore, these factors should be used as reference points only and not applied mechanically.