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DOL Misclassification Memo Says Most Workers Are Covered By FLSA

Jul 15, 2015 / Media Coverage / Law360 — Ben James

The U.S. Department of Labor issued guidance Wednesday aimed at curbing the misclassification of employees as independent contractors, saying that most workers qualify as employees under the Fair Labor Standards Act and stressing the statute's expansive definition of employment.

DOL Wage and Hour Division head David Weil's 15-page “administrator's interpretation” pointed out that employees improperly labeled as independent contractors may miss out on things like minimum wage and overtime pay, and added that correct classification has “critical implications” for the legal protections workers receive, particularly low-wage workers.

Under the FLSA, the key question is whether a worker is genuinely in business for him- or herself, which makes that worker an independent contractor, or is economically dependent on the employer, the agency said, going on to discuss six “economic realities factors” that guide the classification assessment.

“In sum, most workers are employees under the FLSA’s broad definitions,” the guidance said. "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, which include the nature and degree of the employer's control and whether the work performed is integral to the business, shouldn't be “analyzed mechanically or in a vacuum” and no one factor should get too much weight, the agency said, adding that the factors should serve as a road map for determining economic dependence or independence.

The economic realities test used by courts to determine employee versus independent contractor status and the FLSA's "suffer or permit to work” definition have a broader scope than the common-law control test Congress rejected when it drafted the FLSA, the agency said.

Weil, a business school professor who took the helm at the Wage and Hour Division in May 2014, said that the administrator's interpretation was in the works while speaking June 5 at a conference at the New York University School of Law.

“Whether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make,” Weil said Wednesday in a blog post. "The Labor Department supports the use of legitimate independent contractors — who play an important role in our economy — but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses."

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