But in 2010, the DOL started issuing "Administrator Interpretations." These are not tied to any particular request for advice. Rather, the Wage-Hour Administrator would pick a topic and offer an interpretation of an existing regulation. Courts do not give these interpretations the same deference as actual regulations. But they are considered. And the U.S. Supreme Court recently upheld the practice, discussed here.
With that background, you are ready to read the DOL's latest "Administrator Interpretation." The agency has weighed in on the test for whether someone is an independent contractor or employee. As you will see, in Administrator Interpretation 2015-1, the Administrator makes clear the DOL's enforcement position. Here is the conclusion, verbatim:
In sum, 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 factors should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee). The factors should be used as guides to answer that ultimate question of economic dependence. The correct classification of workers as employees or independent contractors has critical implications for the legal protections that workers receive, particularly when misclassification occurs in industries employing low wage workers.(emphasis mine).
The Interpretation reaches that conclusion by analyzing the federal "economic realities" test for whether a worker is economically dependent on the employer (and therefore an employee) or in business for him or herself. It should be noted that this economic realities test differs from the "right of control" test that California courts use, although there is overlap. However, the Interpretation opines that the right to control is just one factor and that the economic realities test is actually broader, in that it sweeps more workers into employee status. That is because, the Interpretation provides, the "economic realities" doctrine explains whom the employer "suffers or permits" to work, which is the definition of "employ" under the Fair Labor Standards Act.
The Administrator goes through familiar economic realities factors such as:
- Is the work performed an integral part of the business? (If so, employee)
- Does the worker's managerial skill affect his / her opportunity for profit / loss (if so, contractor)
- What is the nature of the worker's "investment" vs. the employer's investment relative to the work?
- Does the work require special skill or initiative? (If so, contractor)
- Is the relationship permanent or indefinite (if so, employee)
- What is the nature of employer control.
As you will see, the Administrator emphasizes that no one factor is determinative. The overarching issue is whether, based on the totality of the circumstances, the worker is in business for him or herself, or is economically dependent on the employer. However, if the Administrator's views of the test carry the day in court, there will be far fewer independent contractors out there.
The Administrator Interpretation, No. 2015-1 is here.
