U.S. Department of Labor Withdraws Independent Contractor and Joint Employment Guidance

By Patrick D. Lawler and Susan Milner Parrott

Last week, the United States Department of Labor (DOL) withdrew two Wage and Hour Administrator’s Interpretations, one on classification of workers as independent contractors and the other on joint employment. The Interpretations, both issued during the Obama administration, addressed the misclassification of employees as independent contractors and the guidelines for determining joint employment under the Fair Labor Standards Act (FLSA). The DOL announced its withdrawal of the two Interpretations in a short press release and stated that the removal of the Interpretations, “does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.”

An Administrator’s Interpretation gives the DOL's broad interpretive guidance on a particular topic. The DOL only began issuing Interpretations in 2010. Prior to that, the DOL issued guidance in the form of either officially adopted rules or opinion letters that were in response to specific facts presented in the request for an opinion. Interpretations are not binding law, but they are relied upon by DOL investigators and they may be persuasive to courts.

The independent contractor Interpretation, issued by the Obama DOL in July, 2015, as Administrator’s Interpretation No. 2015-1, “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors,” gave the DOL’s view on how the “economic realities” test should be used to determine whether a worker is an employee. The guidance stated that the “economic realities” test should be applied broadly and concluded that most workers should be considered employees. The DOL’s analysis of the “economic realities” test focused on the degree of economic dependence of the worker on the putative employer--whether the worker is in business for himself (indicating an independent contractor) or is economically dependent on the employer (indicating an employee).

The joint employment Interpretation, issued by the Obama DOL in January, 2016, as Administrator’s Interpretation No. 2016-01, “Joint Employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act,” provided guidance on when separate entities might be joint employers for liability under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The Interpretation described “vertical” and “horizontal” joint employment relationships for determining joint employer status and gave a broad interpretation of when multiple entities might be held liable as a worker’s employer.

It is these two Interpretations that were withdrawn by the Trump DOL and removed from its website last week. The Interpretations had not been well-received by employers or the business community. Compliance with the DOL’s broad interpretations of “independent contractor” and “joint employer” was believed to increase costs for employers and to expose employers to increased liability under the wage and hour and employment-related laws. The DOL’s withdrawal of the two Interpretations is regarded as favorable for employers and might signal that the DOL will move towards a traditional analysis of employment relationships. However, employers should continue to be certain that their workers are properly classified and they should also be aware of the possibility that a joint employment relationship could create liability for them under the FLSA and the MSPA.