On June 7, 2017, the Department of Labor (DOL) withdrew its 2015 and 2016 informal guidance on the topics of joint employment and independent contractors. These guidelines were issued during President Obama’s administration, and had the effect of expanding joint employer liability and narrowing the definition of independent contractor. The guidance letters were in the form of “Administrator’s Interpretations,” which was a form of guidance that the DOL adopted under the Obama administration in 2010 when it ended the practice of issuing Opinion Letters.
Joint employment refers to the condition when one business can be held liable for employment and civil rights law violations at another company. Before 2015, companies faced potential liability as joint employers under the Fair Labor Standards Act (FSLA) and the Migrant and Seasonal Agricultural Worker Protection ACT (MSAWPA) if such companies exercised “direct control” over the employees at issue. In 2015, during the Obama administration, an informal guidance was issued which broadened this standard to include companies exercising “indirect control” over employees, arguably broadening the scope of liability for employers.
The June 7, 2017 withdrawal of these guidelines indicates a return to the pre-Obama Administration standard. In other words, companies once again must have “direct control” over an employee in order to make the finding of joint employment for purposes of determining liability.
The Obama administration’s 2016 guidance on misclassification of workers served to narrow the definition of independent contractor by using a 6-factor test, otherwise known as the economic independence test. With this test, the DOL apparently instructed that “most workers are employees,” and not independent contractors, for purposes of withholding employment taxes, paying unemployment insurance, and considering eligibility for overtime pay and minimum wage under the wage and hour laws. This test considered the following factors:
1) Is the work an integral part of the employer’s business
2) Does the worker’s managerial skill affect the worker’s opportunity for profit or loss
3) How does the worker’s relative investment compare to the employer’s investment?
4) Does the work performed require special skill and initiative?
5) Is the relationship between the worker and the employer permanent or indefinite?
6) What is the nature and degree of the employer’s control?
Since this guidance, too, has been withdrawn, the DOL has presumably returned to its less expansive definition of employee as determined by the “right to control” test. Courts may now revert to pre-guidance interpretations of independent contractor as determined by the case law in the applicable jurisdiction.
In summary, the return to the pre-Obama Administration tests for both joint employment and independent contractors indicates that it may be easier for employers to classify individuals as independent contractors and that it will be more difficult to hold one employer liable for the employment law violations of another company. However, in issuing the withdrawals, the Secretary of Labor clarified that the action will not alter the duties of covered employers to comply with both the FSLA and the MSAWPA.
The Trump administration DOL has not issued new guidance to replace those withdrawn, although such may be forthcoming. In the meantime, employers should continue to be cautious in their classification of workers as independent contractors along with determining their positions in joint employer situations.
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Important Notice: This information is intended for general guidance only, and should not be used as a substitute for specific legal advice. For specific legal advice applicable to your situation, you should consult an attorney of your choice. Although believed to be accurate when written, no guarantee of completeness or accuracy to your particular circumstances should be implied. Laws, regulations, and court decisions in this area change frequently, and you should consult the attorney of your choice for up-to-date information.