How Broad Is Broad? New DOL Guidance Determines 'Most Workers Are Employees'

In a move that is expected to have far-reaching consequences for employers, the U.S. Department of Labor issued new guidance on the classification of independent contractors as employees under the Fair Labor Standards Act (FLSA). Dr. David Weil, the DOL Wage and Hour Administrator, issued a July 15, 2015 Administrative Interpretation (the "Interpretation") warning employers that the definition of "employ" is very broad under the FLSA.1 The guidance reads as an argument, complete with references to favorable federal court decisions, which will likely be used to support future DOL enforcement actions.

Dr. Weil begins his Interpretation by stating:

[m]isclassification of employees as independent contractors is found in an increasing number of workplaces in the United States, in part reflecting larger restructuring of business organizations. When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers' compensation.

A Presumption of Employment

Under the statute's definition of employment, the DOL would find that most workers qualify as employees, not independent contractors. Dr. Weil asserts the statute defines "employ" broadly as including "to suffer or permit to work," which covers more workers as employees. The legal test is whether the worker is economically dependent on the employer or in business for him or herself. "In light of the broad statutory definition of employ, a worker who is economically dependent on an employer is suffered or permitted to work by the employer."

Dr. Weil directs the DOL to be guided by this broad statutory definition when determining whether a worker is an employee or an independent contractor. The employer's title for the employees is irrelevant in making the determination. Similarly, a 1099 form issued by the employer shows only that the employer does not view the worker as an employee.

The DOL applies six economic realities factors when determining the classification of a worker. Dr. Weil cautions that all the factors must be considered in each case, and no one factor is determinative. According to Dr. Weil, those factors include: whether the worker's work is an integral part of the employer's business, whether the worker has an opportunity for profit or loss, the nature of the worker's investment in the company (investment in tools and equipment is...