NEW LABOR DEPARTMENT GUIDANCE AS TO DETERMINATION OF WORKER OR INDEPENDENT CONTRACTOR CLASSIFICATION

Written on May 13, 2016.

Without employment status, persons generally cannot organize a union, pursue employment litigation, or have employment taxes taken out of their paychecks. But unions, plaintiffs’ litigators, and of course the U.S. government, like employment status for tax, enforcement, and other reasons.

On July 15 of this year, the U.S. Department of Labor (DOL) issued an Administrator’s Interpretation regarding the application of the wage-hour laws with respect to the misclassification of workers as independent contractors. Among other things, it is DOL’s opinion that "most workers are employees" under the wage-hour laws. DOL advocates the "economic realities" test as its approach to determining whether a worker is an employee or a contractor, and downplays the significance of an employer’s control over the tasks performed by the worker. Administrator’s Interpretation No. 2015-1 can be found at http://www.dol.gov/ whd/workers/misclassification/ pressrelease.htm.

The "multi-factor economic reality" test normally includes: (a) the extent to which the work performed is an integral part of the employer’s business; (b) the worker’s opportunity for profit or loss depending on managerial skills; (c) the extent of the relative investments of the employer and the worker; (d) whether the work performed requires special skills and initiative; (e) the permanency of the relationship; and (f) the degree of control exercised or retained by the employer. In applying the economic reality factors, the courts have described independent contractors as those workers with economic independence who are operating a business of their own. On the other hand, workers who are economically dependent on the employer, regardless of skill level, are considered employees.

Editor’s Note - While the DOL interpretation does not suggest anything dramatically new in the law, it does emphasize rather vague tests in making a determination of whether a worker is an independent contractor. It should be noted that the DOL interpretation applies only to the wage-hour laws, which applies the liberal "economic realities" test for employee status, while other laws are not as strict as that of the wage-hour laws in this regard.