Thursday, July 16, 2015

DOL Weighs in on Employee vs. Independent Contractor Classification

Not official use.
One of my least favorite topics to teach in my employment law course is the definition of "employee" (vs. independent contractor, trainee/intern, volunteer, or something else). Why? There are several different tests; they can have a dozen or so factors each; and the kicker... some courts use one test, some use another, some use a hybrid, and the tests also sometimes vary depending on the circumstances. The Department of Labor often weighs in on these issues, but as we found out recently, courts don't always follow DOL's interpretation. I can barely make sense of it all, so explaining it to undergraduate students with no legal background is a tough task.

For what it's worth, yesterday the DOL issued Administrator’s Interpretation No. 2015-1 Re: The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors (catchy title!).

So, what tests are in play? The primary contenders are:
  • Economic realities test - "[F]ocuses on whether the worker is economically dependent on the employer or in business for him or herself."
  • Common law test - "[B]ased on the employer’s control over the worker" (specifically, control over when, where, and how the work gets done).
In it's latest interpretation, DOL came down in favor of the economic realities test. The exact flavor of economic realities test varies from court to court, but the interpretation notes these factors:
(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 his or her managerial skill; 
(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.
Astute readers may note that the final factor sounds an awful lot like the "common law test." Ummm, yeah... it does. The tests are different, but there's a lot of overlap. DOL was also quick to note that "no single factor is determinative. The 'control' factor, for example, should not be given undue weight."

To the surprise of no one, DOL picked the broader definition. Classification remains more art than science.