Amidst the ongoing battle for how the sharing economy should define its workers, the Department of Labor stepped in yesterday with their own “guidance” on the issue.

The memo addresses the independent contractor versus employee issue, and takes the position that most workers are actually employees, under the Fair Labor Standards Act (FLSA).

Credit: Sidereal
Credit: Sidereal

“In sum, most workers are employees under the FLSA’s broad definitions,” the report states. “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.”

Of course the 15-page memo also mentions that after receiving numerous complaints in the past few years on the subject, it’s important to emphasize that proper classification of workers is necessary for workplace protections. As such, it lists six factors that determine whether a worker has economic independence:

  1. the extent to which the work performed is an integral part of the employer’s business;
  2. the worker’s opportunity for profit or loss depending on his or her managerial skill;
  3. the extent of the relative investments of the employer and the worker;
  4. whether the work performed requires special skills and initiative;
  5. the permanency of the relationship; and
  6. the degree of control exercised or retained by the employer.

According to the DOL, no part of this test is supposed to be given particular weight or focus; they should not be analyzed “mechanically or in a vacuum.” All factors must be considered in each case, and no one factor is “determinative of whether a worker is an employee.”

The move comes as the latest big change in guidance and treatment of employment law, which Richard Alfred, Alex Passantino, Patrick Bannon, and Adam Smiley note for Wage & Hour Litigation Blog is notable:

Taken collectively, these views—supported by cases cited by WHD, but dismissing virtually all contrary authority—represent an effort to expand dramatically the “economic realities” test. Coupled with WHD’s proposed massive increase to the salary level required for the “white collar” exemptions—published less than 10 days ago—WHD’s actions have the potential to fundamentally alter countless business models, without Congressional activity, without proposed language (in the case of the duties tests for the exemptions), and, in this case, without any opportunity for the regulated community to provide its comments on WHD’s position.

Any business that uses independent contractors extensively or to receive services that are important to its success should review this AI and consider carefully how the WHD and courts applying the economic realities test would view its independent contractor relationships.

But, for as much has been happening in the employment law world, Alfred et. all also note that this is an agency interpretation, not a proposal like the Department of Labor’s amendment to “white collar” exemption regulations. As such it won’t be subject to the same standards for notice and commenting, and the degree to which courts defer to the interpretation will likely “be the subject of debate and litigation.” Courts did, only just last week, decide to disregard the DOL’s six-factor test on unpaid interns.

Still, Grant T. Collins of the Minnesota Employment Law Report says, if you’re an employer, this memo may mark the time to review your independent contractor policies, even if it isn’t law:

This is just an administrative interpretation that does not have the force of law.  Nevertheless, it is a clear indication of how the DOL looks at the law and how they will decide claims of this type that are presented to them.  Moreover, we know that courts often look to the DOL’s interpretations for guidance in deciding cases in their jurisdictions.  Therefore, employers currently utilizing workers classified as independent contractors should revisit those arrangements to be very certain that they pass muster in an environment where employment status is so clearly the presumption in the eyes of the government regulators.