Department of Labor Withdraws Obama Administration Guidance Classifying Most Workers as "Employees"
The new U.S. Secretary of Labor, Alexander Acosta, announced in a June 2017 press release that he was withdrawing the DOL's 2015 guidance on employee misclassification. Under the Obama administration, the DOL issued certain controversial guidance on the topic of employee misclassification as independent contractors. The DOL's stance on this issue under President Obama was that most workers would be considered employees under the Fair Labor Standards Act (FLSA), rather than independent contractors and that it would closely scrutinize independent contractor classifications moving forward.
The DOL's guidance appeared to alleviate the complexity of the issue, but in doing so took a strong stance that was not supported by the text of the FLSA, its regulations or case law. Many argued that the DOL exceeded its authority by issuing such guidance and impeded corporate growth, which relies heavily on the use of independent contractors. The complex issue of how to classify a worker is one that employers face constantly and often turn to counsel for assistance. Employers often elect to use independent contractors due to the flexible nature of the work arrangement, which generally saves an employer from having to pay the high overhead costs and benefits associated with hiring a new employee in exchange for providing a worker the flexibility to set his or her own schedule, work location and the ability to work elsewhere, if desired.
Acosta's decision to withdraw the DOL's prior guidance is a boon for employers who may elect to again use or continue using independent contractors to supplement their regular workforce, subject to the following factors which are generally considered when determining whether an employment relationship exists under the FLSA:
(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; and
(6) The nature and degree of control by the employer.
There has been no announcement at this time as to whether the Department of Labor will issue new guidelines on misclassification.
For specific questions on how to classify workers within your company, please contact Naureen Amjad, a Partner and Leader of Pedersen & Houpt’s Employment Practice Group, at 312.261.2273 or at firstname.lastname@example.org.