Yesterday, the Department of Labor issued an administrator’s interpretation of the FLSA regulations giving a new spin on the determination of employee vs. independent contractor status.
In issuing the guidance, DOL Administrator David Weil, reverted back to the FLSA definition of employ as the basis for the guidance. According to Weil, “[t]he FLSA’s definition of “‘employ’ includes to suffer or permit to work.” 29 U.S.C. 203(g). This “suffer or permit” concept has broad applicability and is critical to determining whether a worker is an employee and thus entitled to the Act’s protections. …The “suffer or permit” standard was specifically designed to ensure as broad of a scope of statutory coverage as possible.”
The DOL has always endorsed the “economic realities test” to determine independent status. The factors of that test are as follows:
1) The extent to which the work performed is an integral part of the employer’s business.
2) Whether the worker’s managerial skills affect his or her opportunity for profit and loss.
3) The relative investments in facilities and equipment by the worker and the employer.
4) The worker’s skill and initiative
5) The permanency of the worker’s relationship with the employer
6) The nature and degree of control by the employer
Previously, greater weight was generally given to the last factor, the degree of control by the employer. Yesterday’s guidance shifts that focus. It says “[i]n order to make the determination whether a worker is an employee or an independent contractor under the FLSA, courts use the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself. A worker who is economically dependent on an employer 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.”
Given the increasing disputes regarding the validity of independent contractor status, such as with Fed Ex and Uber, as well as the increasing use of alternative designation of workers, employers are wise to review the status of their work force in light of changing focus on the independent contractor definition.
