Click to add image



As part of its ongoing efforts to curtail a “problematic trend” of misclassified workers, the Wage and Hour Division of the U.S. Department of Labor (DOL) has fashioned an analytic framework as “additional guidance” for determining whether a worker is properly classified as an employee or independent contractor. Under this construct, the DOL advocates using the existing, “very broad” statutory definition of “employ” under the Fair Labor Standards Act (FLSA) (i.e., “to suffer or permit to work”) as the context for construing the six “economic realities” factors courts use to assess a worker’s proper classification. The net effect of this new framework is the adoption of a test, which results in the conclusion that “most workers are employees under the FLSA.”

Indeed, only those workers who are really in business for themselves (i.e., someone who is operating a business of their own, and is therefore independent) and who are not economically dependent on the employer (and therefore not its employee) can be properly classified as an independent contractor. In other words, an entity will be deemed to “suffer or permit” a person to work “if, as a matter of economic reality, the individual is dependent on the entity,” when viewed in light of the following “economic realities” factors:

1. the extent to which the work performed is an integral part of the employer’s business;
2. whether the worker’s managerial skills affect his/her opportunity for profit or loss;
3. 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.

In applying this analysis, no single factor, including the degree of control over the worker’s activities, is determinative; and the DOL has made clear that the labels an entity gives to a worker (contractor, owner, partner, member of a limited liability company, etc.) and the language of the contract between them is irrelevant to the classification analysis. “The application of the economic realities factors is guided by the overarching principle that the FLSA should be liberally construed to provide broad coverage for workers, as evidenced by the Act’s defining ‘employ’ as ‘to suffer or permit to work.’"

In furtherance of the DOL’s initiative relating to worker misclassifications, the DOL has joined forces with many state labor departments and with the IRS, to ensure an integrated analytical and enforcement framework. Given the complexities of this new guidance, and the subtle state variances, classification issues can be tricky, and the penalties for misclassification stiff.

For assistance with classification issues, or a copy of the Administrator’s Interpretation, please contact Hollis Gonerka Bart.