On the heels of several cases involving worker misclassification, such as the FedEx decision reported upon in the PK Law newsletter, comes the U.S. Department of Labor Wage and Hour Division’s Administrator’s Interpretation No. 2015-1 issued July 15, 2015 (the “Interpretation”). In the Interpretation, Administrator David Weil provides “additional guidance regarding the application of the standards for determining who is an employee under the Fair Labor Standards Act (FLSA or “the Act”)”
The Interpretation points out that courts use:
“…the multi-factorial economic realities” test for classifying workers, which test focuses on whether the worker is economically dependent [on the organization receiving the worker’s services] or in business for him or herself. A worker who is economically dependent on an [organization] is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA. The application of the economic realities factors must be consistent with the broad “suffer or permit to work” standard of the FLSA.” (Citations omitted.)
The Interpretation recites that Congress rejected the common law “control test” in enacting the FLSA. As a result of the application of the “economic realities test” under the FLSA and the broad definition of “employ” under the FLSA, more workers are treated as employees rather than independent contractors. The question is whether the worker is “economically dependent” on the company for work, e.g. “suffer or permit to work”.
In making the determination of economic dependence, the Interpretation recites several key factors to be examined. The first is whether the work is an “integral part of the [organization’s] business”, a factor which the Interpretation states: “Courts have found compelling.” A determination of this factor is not reliant on the size of the organization or the place at which the worker performs services.
A second key factor is whether the worker’s managerial skill affects the worker’s opportunity for profit or loss. This factor, according to the Interpretation, involves real business decisions, such as hiring and firing, the purchase of equipment and supplies, and leasing of space, to name a few, and not merely the ability to work more hours.
A third key factor is the relative investment between the worker and the organization to which services are provided by the worker. The worker’s investment must be “significant” in relation to that of the organization. Even a worker’s investment of tens of thousands of dollars may pale in comparison to an organization’s overall investment in the product or services it provides, therefore lacking in significance”, according to the Interpretation.
Next, one would look to the “worker’s business skills, judgment and initiative” as a factor to consider in classification as an employee or independent contractor. This is more than a worker’s “special skills” or “technical skills”. The Interpretation points out that the lack of making independent decisions “beyond the work that [is being done] for that job” indicates the worker is an employee, not an independent contractor.
The fifth factor examines the permanency of the relationship between the worker and the organization. The Interpretation points out that a lack of permanence does not “automatically suggest an independent contractor relationship”. However, independent contractors “typically work[s] one project” as opposed to workers who are engaged on a permanent or indefinite basis, such as “at will” workers, all of whom are more likely to be classified as employees.
Control is also a key factor, according to the Interpretation. The worker must exercise control which is not theoretical and which is exercised over “meaningful aspects of the work”. When and where the work is performed is less important than what the worker actually does. The control factor should not “play an oversized role in the analysis of whether a worker an employee or an independent contractor”.
The Conclusion of the Interpretation states: “In sum, most workers are employees under the FLSA’s broad definitions.” Indeed, the finding that workers for an organization are independent contractors under federal and, ultimately state, law is an ever higher bar to reach.
PK Law’s Employment and Labor attorneys have extensive experience in the application and interpretation of wage and hour laws for employers. To contact an attorney in PK Law’s Worker Misclassification and Wage and Hour Law Group click here. For additional information contact email@example.com.
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