The DOL continues to deliver on the promise of its busy summer. This morning, Department of Labor Wage and Hour Division (WHD) Administrator Dr. David Weil announced a new, 15-page Administrator’s Interpretation in a DOL blog post that stressed the FLSA’s expansive definition of employment and reinforced the WHD’s position that most workers qualify as employees under the FLSA. In the run-up to the release of the proposed Fair Labor Standards Act (FLSA) regulations, Dr. Weil announced in a speech at NYU’s law school that his office would soon issue guidance that would “clarify” who qualifies as an independent contractor under the FLSA by providing a “very clear set of criteria.” Although its impact on litigation remains to be seen, the DOL does clearly outline its position that:
most workers are employees under the FLSA’s broad definitions . . . 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 Administrator’s Interpretation presents no new sets of “economic realities” criteria, but it does provide clarity: the WHD does not seem to care about the application of the economic realities test. The WHD uses the phrase “economically dependent” 21 separate times in the Interpretation. The document repeatedly steers stakeholders and courts away from the “mechanical application” of economic realities factors and toward this focus on the economic dependence of the worker. Dr. Weil’s blog post drives that point home:
Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).
The DOL also notes one expanding area of enforcement in footnote 4, highlighting something that we discussed an example of last spring with faux “franchises”: employees increasingly being “labeled something else, such as ‘owners,’ ‘partners,’ or ‘members of a limited liability company.’” The DOL explains that these labels are not important, and that “the determination of whether the workers are in fact FLSA covered employees is also made by applying an economic realities analysis” toward this economic dependence/independence conclusion.
As those of you who follow this blog know, independent contractor definitions impact not just what you traditionally think of as contractors, but also jobs in the “sharing economy,” volunteers, franchisees, state law definitions of “employees,” and even the use of homeless people as wireless hotspots. This employee/independent contractor issue is among the most litigated in wage and hour law, and the DOL’s Administrator’s Interpretation suggests that the WHD prefers to boil the economic realities factors down to this single, “Is the worker economically dependent?” question.
Employers using just in time or other unpredictable scheduling methods or who rely on the “sharing economy” like Uber, Instacart, Postmates, Homejoy, and Handy get another special shout out, in case the “economically dependent” language wasn’t sufficient enough:
Technological advances and enhanced monitoring mechanisms may encourage companies to engage workers not as employees yet maintain stringent control over aspects of the workers’ jobs, from their schedules, to the way that they dress, to the tasks that they carry out. Some employers assert that the control that they exercise over workers is due to the nature of their business, regulatory requirements, or the desire to ensure that their customers are satisfied. However, control exercised over a worker, even for any or all of those reasons, still indicates that the worker is an employee.
Though not expressly identifying its “predictable scheduling” goals or addressing the sharing economy by name, this view—and DOL’s focus on “economic dependence” as a whole—will undoubtedly color the ongoing debates about employee/independent contractor status and the so-called sharing economy. This all-or-nothing dependence is glaring weakness in the FLSA when compared to similar laws in other countries. On this point, I will be presenting a paper in September urging the adoption of a “dependent contractor” classification under the FLSA. In many European countries, this classification sits between employee and independent contractor. I will share more details over the next couple of months here on the Wage & Hour Insights blog and over at Social Science Research Network (SSRN).
Otherwise, the Administrator’s Interpretation treads familiar ground. The “economic realities” test is not new, and the Interpretation lists the standard six factors in subsections A through F:
- Is the work an integral part of the employer’s business?
- Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
- How does the worker’s relative investment compare to the employer’s investment?
- Does the work performed require special skill and initiative?
- Is the relationship between the worker and the employer permanent or indefinite?
- What is the nature and degree of the employer’s control?
As the DOL reminds employers, none of these factors is dispositive on its own, but just a guide to answer this “economically dependent” question.
Unlike the new FLSA regulations, Administrator’s Interpretations do not require any notice and comment period and do not carry the force of law in the way a regulation would, but courts do give these interpretations deference. Administrator’s Interpretations have been few and far between since the DOL first began using them in 2010, and this is one of the few times that the Wage and Hour Division has used one to signal a significant new expansion of the FLSA. We will be watching how the DOL employs this Administrator’s Interpretation in the coming months, and will keep you up to date on any shifts in enforcement or litigation positions at the DOL.
Doug Hass is an associate at Franczek Radelet and the primary author of Wage & Hour Insights Blog.