Secretary of Labor Withdraws Previous Guidance on Joint Employment and Independent Contractors

by Obermayer Rebmann Maxwell & Hippel LLP

In a Department of Labor news release yesterday, new U.S. Secretary of Labor Alexander Acosta announced the withdrawal of two Obama-era Administrator Interpretations, effectively rolling back the scope of the Fair Labor Standards Act and its application to joint employment and independent contractors.  These two interpretations, issued by the former Administrator of the DOL’s Wage and Hour Division (“WHD”) in July of 2015 and January of 2016, were not legally binding.  However, both publications sent a message to the employer community that the DOL and WHD would take a broad view of the applicability of the FLSA to companies that characterize their workers as independent contractors or share employees with other organizations.

What’s Withdrawn?

The first interpretation, issued in July of 2015 and covered by HR Legalist, took an expansive view of what types of workers labeled as contractors could actually be deemed employees legally entitled to minimum wage and overtime under the FLSA.  The DOL indicated that it would rely on a multiple factor “economic realities” test used to determine whether or not a worker is economically dependent on the employer (an employee) or truly in business for him or herself (an independent contractor).  The interpretation cited to court cases across the country applying this test, which is broader than the “common law” test used by the IRS for employment tax purposes.  Now that this interpretation has been withdrawn, the DOL may use a more restrictive test in the future.

Similarly, the 2016 interpretation took a broad view of “joint employment” situations, where two or more employers may be held responsible for the failure to pay appropriate wages. The 2016 interpretation identified two types of joint employment arrangements: horizontal joint employment (where two or more affiliated entities are considered joint employers of the same employee or employees); and vertical joint employment , where an organization relies on an intermediary such as a Professional Employer Organization (“PEO”), or a temp agency to supply employees.  In the case of horizontal joint employment, the 2016 interpretation states that the DOL would analyze the relationship between the two entities, including any overlap between ownership, management, employees, operations, and customers.  In the case of vertical joint employment, the interpretation adopted the economic realities test to determine whether the company relying on the intermediary organization should also be considered an employer.

What’s Next?

Secretary Acosta withdrew these two prior guidance documents without releasing any updated guidance hinting at what position the DOL would take in the future regarding these issues. Employers may get a hint if Secretary Acosta makes public statements about the DOL’s position on these issues, or if he addresses those issues during congressional hearings.

In the meantime, this move signals that the DOL may be less aggressive regarding independent contractor misclassification and joint employment under the Trump administration. This means that it is less likely that companies will be considered employers of independent contractors or workers supplied by other firms.  However, since courts across the country already use variations of the economic realities test in FLSA cases, employers still need to be aware of their potential legal responsibilities to contractors and workers supplied by PEOs, regardless of what entity is cutting the paychecks.  Employers with questions regarding their obligations towards these types of workers should consult experienced employment counsel.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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