I’ve written several times on the topic of employee v. independent contractor misclassification (here, here, here, here, here, here).  Yesterday, the DOL issued an Administrator’s Interpretation attempting to provide additional guidance, and the Department’s opinion, on the application of the standards for determining whether a worker is an employee or an independent contractor.  The Interpretation implies that a presumption of “employee status” exists (i.e., that most workers will be employees, not contractors).  The Interpretation goes to great lengths to emphasize the breadth, broad scope and expansive definition of definition of “employ” under the FSLA.  The purpose, like the recently issued proposed changes to the white collar exemption salary test, is to bring more workers under the coverage of the FLSA.  Moreover, the Interpretation also suggests that this test should be used even with workers who are owners, partners or members of a limited liability company (presumably only in those situations where such titles are used as shams to avoid employee status under the FLSA).  The test, articulated in the Interpretation, identifies the following six elements:

  • 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?

These elements differ slightly from the economic realities test used in the Fifth Circuit to determine employee/independent contractor status.  Essentially, the Interpretation adds the additional element of whether the work is integral part of the employer’s business.  The Interpretation notes that the Fifth Circuit uses only five elements but goes on to add that the Fifth Circuit’s five factors were non-exhaustive.  It remains to be seen whether the Fifth Circuit will incorporate this additional element in future cases; although given the non-precedential effect of Administrator’s Interpretation and the doctrine that one appellate panel cannot reverse an earlier panel’s law of the case; the stronger argument would likely be that the DOL’s “integral part” element is not used in the Fifth Circuit.

You can download the full Administrator Interpretation here.

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