In a policy shift, President Trump’s Department of Labor (DOL) recently announced its decision to retract two important policy papers that had explained the federal government’s interpretation of certain aspects of federal wage and hour law. The withdrawn documents – Administrator’s Interpretation No. 2015-1 and No. 2016-1 – concerned worker classification and the joint employer doctrine, respectively. Both Interpretations adopted an expansive view of the terms “employee” and “employer” in order to make more workers and more businesses fall under the wage payment rules of the Fair Labor Standards Act (FLSA).
The Trump Administration’s move does not change the underlying law and requirements embodied in the FLSA. Nevertheless, the roll-back signals to investigators, the public, and the courts that the DOL now rejects the broad (and controversial) FLSA interpretations advanced by the Obama administration. DOL has not yet issued any replacement guidance, but firms that utilize independent contractors or partner with other entities to address workforce needs have greeted the change with enthusiasm.
With respect to the question of whether a worker is an independent contractor, DOL’s 2015 guidance advised that the “ultimate inquiry” under the FLSA was whether the worker was “economically dependent on the employer or truly in business for him or herself.” That withdrawn guidance favored a finding of employment over a finding of independent contractor status. Moving forward, DOL’s analysis of worker classification issues may prove to be more tolerant of independent contractor relationships, but because the DOL has not replaced the withdrawn Interpretation with anything new, businesses should remain careful in their worker classification decisions. In the wage-and-hour arena, the consequences of misclassifying an employee as a contractor can have a profound (and expensive) impact on the bottom line in the form of payment of back wages, improper withholdings, tax penalties, and unpaid benefits like insurance, profit-sharing, severance, and stock options.
DOL’s now-withdrawn 2016 guidance regarding joint employment addressed the topic of when businesses that work together (sometimes through contracting, franchising, outsourcing, and staffing arrangements) should be classified as “joint employers.” A determination that parties are joint employers is significant; it means that two or more businesses are each responsible for complying with federal wage and hour law for shared employees. That shared responsibility also means shared liability in the event of compliance failure. The rescinded DOL Administrator’s Interpretation took the broad view that businesses could be “joint employers” even where one business only exercised indirect control over the other workplace. It remains to be seen whether courts will return to DOL’s old approach that emphasized “direct control.” Judges, including those on the federal Fourth Circuit Court of Appeals, have already been looking at issues of joint employment in new ways and are unlikely to change their approach simply because the prior Administration’s guidance document has been discarded.
The changing economy and political changes in Washington, D.C., are sure to keep worker classification and joint employment top of mind for employers, who await new guidance from the Trump DOL. In the meantime, employers should continue to look to the actual provisions of the FLSA and related court decisions as they structure their affairs and relationships.
TIP: The Department of Labor’s recent withdrawal of Obama-era Administrator’s Interpretations concerning independent contractors and joint employment relationships is a nod to the Trump Administration’s enforcement priorities but does not change the substantive law of the Fair Labor Standards Act. As before, employers must continue to tread cautiously as they navigate issues of employee classification and potential joint employment relationships.