The U.S. Department of Labor (DOL) recently released 12 questions and answers in a publication called “Misclassification Mythbusters.” It appears that the publication is intended to educate/inform individuals about whether they are, in fact, independent contractors. This “mythbuster” publication follows the DOL administrator’s interpretation released on July 15, 2015 that declared that “most workers are employees.” Administrator’s Interpretation No. 2015-1.
The “mythbuster” publication seemingly suggests that the test for independent contractor status under the Fair Labor Standards Act (FLSA) is a single factor test. For example, in Myth # 3, it states: “Under the FLSA, you are an employee if your work indicates you are economically dependent on an employer. On the other hand, you are an independent contractor if, as a matter of economic reality, you are in business for yourself.” Yet, in the Administrator’s Interpretation, the DOL stated that it would determine a worker’s status under the FLSA by applying the six-factor “economic realities” test used by some courts. The factors included in that publication were the following:
(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 and 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?
Businesses should continue to take note of the DOL activity related to independent contractors as the DOL continues its focus on targeting businesses with independent contractors. In August 2016, the DOL announced an investigation that resulted in a consent judgment that ordered a business to pay $2,359,685.
Businesses operating in many industries, including “services on demand” companies, may face increased investigations by either federal or state agencies. Those businesses that wish to maintain independent contractors should contact experienced counsel to ensure that their engagements are compliant with federal, state and local laws.