The administrator for the US Department of Labor’s Wage and Hour Division tackled misclassification in an “administrator’s interpretation [1].” The document aims to look at how the Fair Labor Standards Act’s definition of “employee” guides the determination of employee or contractor status under the “economic realities” test. The interpretation was released last week.
“In sum, most workers are employees under the FLSA’s broad definitions,” according to the interpretation. “The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”
The interpretation drew much attention.
“The guidance now makes it likely that DOL investigations and enforcement actions and private litigation contesting the classification of such workers will intensify,” according to a blog post [2] by attorneys at law firm Seyfarth Shaw LLP. “Businesses should, therefore, carefully evaluate the DOL’s guidance and its potential impact on their operations.”
However, the attorneys also noted the interpretation is not subject to notice and comment process required for rulemaking, and the extent to which courts may defer to the interpretation is “likely to be the subject of debate and litigation.”
David Weil, administrator for the Labor Department’s Wage and Hour Division, also discussed his interpretation in his own blog post [3].
“Ultimately, the goal of the economic realities test is to determine whether a worker is economically dependent on the employer (and is therefore an employee) or is really in business for him or herself (and is therefore an independent contractor),” Weil wrote in the post. “We believe in providing employers all of the information that they need to comply, and this document, with its discussion of the relevant law and inclusion of numerous examples, will help employers.”
The Wage and Hour Division will also continue to pursue misclassification through enforcement, Weil wrote.
Independent contractors are commonly used in the contingent workforce space, and many online staffing firms rely on them. Firms such as ride-sharing services Uber and Lyft have been sued by workers claiming they were misclassified as independent contractors. Gig economy firms such as Shyp are beginning to use W-2 employees instead of independent contractors to avoid misclassification. However, at least one [4] gig economy firm closed its doors amid speculation that misclassification concerns contributed to its problems..