Misclassification of Employees as Independent Contractors
By Attorney Nicholas J. Vlies of Lin.Liebmann LLC
On July 15, 2015, David Weil, the Wage and Hour Division Administrator, issued Administrator’s Interpretation (“AI”) No. 2015-1, which clarified the Department of Labor’s position on independent contractors. While the AI is not binding, the AI should be considered by companies that use independent contractors.
As noted in the AI, the FLSA defines an “employee” as “any individual employed by an employer” and the definition of “employ” includes “to suffer or permit to work.” 29 U.S.C. 203(d), (g). The AI argues that the “suffer or permit” definition was “specifically designed to ensure as broad of a scope of statutory coverage as possible.” Given the broad scope of the FLSA, the AI makes clear that “most workers are employees under the FLSA . . . .” To that end, the AI suggests that the economic realities test should be applied broadly in evaluating whether a worker is an employee or an independent contractor. Specifically, when applying the economic realities test “each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself . . . or is economically dependent on the employer . . . .” The AI emphasizes that the factors should not be applied mechanically and that no single factor is determinative, including the traditional “control” factor. The Wage and Hour Division’s interpretation on how to apply the economic realities test will, more times than not, result in a determination that a worker is an employee.
Given the above, employers should evaluate whether any workers should be classified as employees rather than independent contractors. Moreover, employers should be cognizant of the risks associated with misclassifying workers as independent contractors.
If you have any questions regarding AI No. 2015-1 feel free to call us at 920-393-1190.