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Independent Contractors: What you Need to Know About DOL Interpretation

As published in the Pennsylvania Insider Newsletter June, 2017

Published on: Fri 14th Jul, 2017 By: Julie Aquino

On June 7, 2017, the U.S. Department of Labor (“DOL”) announced a change with respect to its interpretation of the law pertaining to independent contractors and joint employment. To understand the changes, we have to revisit 2015. As part of the Obama administration’s “push to give America a raise”, the DOL in July 2015 announced a new interpretation regarding independent contractors. The DOL took the position in 2015 that “most workers are employees under the Fair Standard Labors Act’s broad definitions” and found that employers increasingly were misclassifying workers as independent contractors. Recall that in 2015 companies such as Uber and Lyft were emerging as a part of the new so-called “gig” economy.

The DOL’s 2015 interpretative guidance took the view that independent contractor status should be determined primarily based on whether the worker is “economically dependent” on the employer (and thus is an “employee”) or is really in business for him or herself (and thus is an independent contractor). This was a shift away from the common law “control” test. The degree of the employer’s “control” over workers had traditionally been the hallmark of independent contractor status, but the DOL stated in its 2015 guidance document that in the current economy, many workers, including those who work remotely, may be able to control significant portions of their work and yet are not independent contractors. The DOL’s view in 2015 was that “control” is not meaningful unless the worker is operating his or her own business, which the DOL stated should be analyzed based on six (6) “economic realities” factors.

A main takeaway from the 2015 DOL guidance, which is now rescinded, was that the DOL considered most workers to be “employees”, with independent contractor status used sparingly. Critics of the DOL’s 2015 guidance countered that the DOL had emphasized rather vague “economic realities” criteria for assessing whether a worker is an independent contractor and applied an overly expansive view of the FLSA’s definition of “employee.”

So what has changed now, and how should employers currently assess whether a worker is an independent contractor rather than an employee? On June 7, 2017, Labor Secretary Acosta announced the withdrawal of the 2015 guidance with respect to independent contractors. Therefore, independent contractor analysis returns back to the traditional assessment in which the degree of the employer’s “control” over workers is the hallmark. Secretary Acosta also withdrew 2016 DOL guidance issued under the Obama administration with respect to “joint employer” status. The Obama-era DOL guidance on joint employers specifically targeted the construction, agricultural, staffing and hospitality industries, and had little impact on local governments.

While independent contractor analysis has returned to a more employer-favorable approach, keep in mind that the analysis has always been historically complex. There are twenty (20) common law factors to consider in assessing independent contractor status, and those factors continue to apply today under Secretary Acosta’s administration. As such, employers should continue to carefully assess all of the relevant factors when determining whether a worker may lawfully be classified as an independent contractor.