Most Workers Are Employees, Not Independent Contractors, Says DOL

Author: Michael Cardman, XpertHR Legal Editor

July 15, 2015

The US Department of Labor (DOL) today issued a new "administrator's interpretation" intended to help employers figure out whether to treat workers as employees or independent contractors under the Fair Labor Standards Act (FLSA).

This administrator's interpretation does not appear to break any significant new ground beyond rewording criteria that had already been detailed in an existing DOL fact sheet. Nevertheless, the administrator's interpretation offers a far greater level of detail, including examples and citations to case law.

According to the DOL, employers should consider the following questions when classifying workers:

  1. Is the work an integral part of the employer's business?
  2. Does the worker's managerial skill affect the worker's opportunity for profit or loss?
  3. How does the worker's relative investment compare to the employer's investment?
  4. Does the work performed require special skill and initiative?
  5. Is the relationship between the worker and the employer permanent or indefinite?
  6. What is the nature and degree of the employer's control?

"[T]he factors themselves should not be applied in a mechanical fashion, but with an understanding that the factors are indicators of the broader concept of economic dependence," according to the DOL. "Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor). The factors are a guide to make this ultimate determination of economic dependence or independence."

Although the administrator's interpretation is rooted in case law and represents the enforcement stance of the current administrator, it is hardly the last word on independent contractor classification.

For one thing, courts are not obligated to defer to informal agency interpretations of vague or ambiguous statutes, as they are with more formal "notice-and-comment" regulations. Some courts may afford an administrator's interpretation respect based on its power to persuade - but the DOL's track record in this area has been spotty in recent years. The US Supreme Court rejected the DOL's friend-of-the-court briefs in a ruling about pharmaceutical sales representatives in 2012 and a federal appeals court voided an administrator's interpretation about mortgage loan bankers in 2013.

Furthermore, the DOL's administrator's interpretation is limited only to FLSA coverage. It does not address other areas in which questions of independent contractors arise, such as the tax code or state unemployment laws.