The More Things Change, the More They Stay the Same Updates to the Independent Contractor Classification Under the FLSA BY Alexa e. cellier The end of the Obama Administration was marked with progressive changes in wage and hour laws. In July 2015, the Department of Labor addressed the problem of misclassifying employees as independent contractors, which leaves the employees without certain minimum wage, overtime, unemployment and workers’ compensation protections.
AI 2015 focuses on the worker’s economic dependence on the employer. This analysis considers six factors: (A) the extent to which the work performed is an integral part of the employer’s business; (B) the worker’s opportunity for profit or loss depending on his or her managerial skill; (C) the extent of the relative investments of the employer and the worker; (D) whether the work performed requires special skills and initiative; (E) the permanency of the relationship; and (F) the degree of control exercised or retained by the employer. No single factor is determinative.
To determine whether an individual was properly classified as an independent contractor, Administrator Interpretation No. 2015-1 (“AI 2015”) directs employers to apply the same economic realities test that is applied to the Fair Labor Standards Act’s (“FLSA”) “suffer or permit to work” standard.1 By direct application of the FLSA’s economic realities test,
For the first factor, AI 2015 used a broad interpretation of “integral,” explaining that a call center employee is integral even if hundreds of other individuals perform his same function. Similarly, a carpenter is integral to a construction company that frames residential homes. For the second factor, AI 2015 indicated that the employers should not focus on the worker’s ability to work more hours, but rather on whether the worker exercises managerial skills affecting his profit or loss. With respect to the third factor, AI 2015 highlighted the importance of the worker’s investment as compared with the company’s. Regarding the fourth factor, AI 2015 explained that technical skills are not the focus; rather, business skills, judgment and initiative inform whether the worker is operating his own business. For the fifth factor, AI 2015 specified that a permanent or indefinite relationship is indicative of independent contractor status if it results from the worker’s own independent business initiative. Lastly, AI 2015 cautioned that the sixth factor is not satisfied merely by allowing an employee freedom to work off-site or from home, in part, because employers can still maintain stringent control over employees working off-site due to technological advances and enhanced monitoring mechanisms. In January 2016, another Administrator’s Interpretation was issued that continued the Department of Labor’s progressive approach to characterizing employees’ status, but this time
20 | Columbus Bar L aw yers Quarterly Winter 2018