On Wednesday, July 15, 2015 the U.S. Department of Labor (the “DOL”) issued Administrator’s Interpretation No. 2015-1 (the “AI”) to provide guidance on how to determine whether a worker is an independent contractor or employee under the Fair Labor Standards Act (“FLSA”). The AI continues the DOL’s intent to aggressively challenge independent contractor classifications and ultimately classify more workers as employees. This came on the heels of the July 8th opinion in Craig v. FedEx Ground finding that the FedEx drivers are employees and not independent contractors.
The AI does not create a new test to determine whether a worker is an employee or independent contractor. Rather, it serves as the DOL’s interpretation of the standard used to classify a worker. The 15 page document provides detailed guidance regarding the DOL’s interpretation of the “economic realities” test used to determine whether an individual is appropriately classified as an independent contractor for purposes of the FLSA.
When analyzing each of the six factors of the “economic realities” test “[t]he ultimate inquiry … is whether the worker is economically dependent on the employer or truly in business for him or herself.” The factors are:
1. Is the Work an Integral Part of the Employer’s Business?
The AI states: “If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer…. A true independent contractor’s work, on the other hand, is unlikely to be integral to the employer’s business.”
2. Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?
The AI states: “A worker in business for him or herself faces the possibility to not only make a profit, but also to experience a loss. The worker’s managerial skill will often affect opportunity for profit or loss beyond the current job, such as by leading to additional business from other parties or by reducing the opportunity for future work.”
3. How Does the Worker’s Relative Investment Compare to the Employer’s Investment?
The AI states: “The worker should make some investment (and therefore undertake at least some risk for a loss) in order for there to be an indication that he or she is an independent business. An independent contractor typically makes investments that support a business as a business beyond any particular job.”
4. Does the Work Performed Require Special Skill and Initiative?
The AI states: “A worker’s business skills, judgment, and initiative, not his or her technical skills, will aid in determining whether the worker is economically independent Technical skills alone are not indicative of independent contractor status. Even specialized skills do not indicate that workers are in business for themselves, especially if those skills are technical and used to perform the work.”
5. Is the Relationship between the Worker and the Employer Permanent or Indefinite?
The AI states: “Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee. After all, a worker who is truly in business for him or herself will eschew a permanent or indefinite relationship with an employer and the dependence that comes with such permanence or indefiniteness.”
6. What is the Nature and Degree of the Employer’s Control?
The AI states: “The worker must control meaningful aspects of the work performed such that it is possible to view the worker as a person conducting his or her own business….Control is only significant when it shows an individual exerts such a control over a meaningful part of the business that she stands as a separate economic entity.”
It is clear that the DOL’s position is that “most workers are employees under the FLSA’s broad definitions.” This guidance is consistent with the DOL’s continued push to characterize workers as employees rather than independent contractors.
Taken as a whole the current administration has not been friendly to the independent contract model and has taken an interest, and provided resources, for increasing the investigation of misclassification of employees. While this is not good news to trucking companies using independent contractors, it doesn’t call for panic. Bearing in mind the Memo is not the law, but an interpretation by an agency. What it does call for is an increased scrutiny of driver agreements and the manner in which drivers are treated by the trucking companies. An ounce of prevention is worth a pound of cure.
Josh Owings is an Associate at Roberts Perryman PC. His practice focuses on trucking litigation as well as insurance coverage and defense.
Roberts Perryman has been a leader in transportation defense for over 50 years with offices in St. Louis and Springfield, MO and Belleville, IL. http://www.robertsperryman.com