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U.S. Department of Labor issued guidance on misclassification of workers

July 17, 2015

      Yesterday, the U.S. Department of Labor (DOL) issued a guidance document (update on 6/24, a copy of the document is stored on Mega.nz) providing its current interpretation under the Fair Labors Standard Act (FLSA), 29 U.S.C. § 201, as to whether a worker is an employee or an independent contractor.

      The DOL's position, in a nutshell, is that "most workers are employees under the FLSA."  Guidance at p.2.

      To reach this position, the DOL relies upon the FLSA's definition of "employ" which means to "suffer or permit to work".  29 U.S.C. 203(g).  This definition was chosen to provide as broad a scope of coverage as possible.  Guidance at p.3.  With that definition in mind, a court examines a worker's situation using the multi-factorial "economic realities" test to determine "whether the worker is economically dependent on the employer or in business for him or herself."  Guidance at p.2. The goal of the test "is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer [and thus "is suffered or permitted to work"]  (and thus its employee) or is really in business for him or herself (and thus its independent contractor)."  Guidance at p.2.

     The relevant factors for the economic realities test are:
A.  Is the work an integral part of the employer's business?
B.  Does the worker's managerial skill affect the worker's opportunity for profit or loss?
C.  How does the worker's relative investment compare to the employer's investment?
D.  Does the work performed require special skill and iniative?
E.  Is the relationship between the work and employer permanent or indefinite?
F.  What is the nature and degree of the employer's control?

    In reaching this position, the DOL argues that the common law control test, "which analyzes whether a worker is an employee based on the employer's control over the worker and not the broader economic realities of the working relationship," was rejected when the FLSA was enacted.  Guidance at p.3-4.

    Determining whether a worker is an employee or independent contractor is a difficult issue, and one fraught with penalties should the wrong conclusion be reached.

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