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Labor department guidance on independent contractors raises concerns

Posted On: Jul. 16, 2015 12:00 AM CST

Labor department guidance on independent contractors raises concerns

An increasing number of workplaces are misclassifying employees as independent contractors, says the Department of Labor in guidance issued Wednesday that is generating significant concern among employer representatives.

The guidance issued by DOL wage and hour administrator David Weil states some employees are being intentionally misclassified as a means to cut costs, and avoid compliance with labor laws.

The guidance says employers should use the Fair Labor Standards Act’s definition of employ as “to suffer and permit to work” in applying an “economic realities test” in determining whether workers are employees.

According to the guidance, factors to be considered under this test, which is now being used by courts to evaluate this issue, are: the extent to which the work performance is an integral part of the employer's business; the worker's opportunity for profit or loss depending on his or her managerial skill; the extent of the relative investments of the employer and the worker; whether the work performed requires special skills and initiatives; the permanency of the relationship; and the degree of control exercised or retained by the employee.

“In undertaking this analysis, each factor is examined and analyzed in relation to one another, and no single factor is determinative,” says the guidance.

“The guidance can be categorized as not necessarily totally new, but pushing the interpretation of court decisions to the broadest extent possible in order to obtain coverage for more workers under federal wage and hour laws,” said Matthew S. Disbrow, a partner with law firm Honigman, Miller, Schwartz and Cohn L.L.P. in Detroit. “The guidance has gone about as far as you take it when relying on court decisions.”

Mr. Disbrow said, “The DOL believes most work should be performed by employees, so business should be cautioned to use independent contractors sparingly.”

The 7th U.S. Circuit Court of Appeals in Chicago held in a ruling last week that FedEx Corp. drivers in Kansas are employees, not independent contractors.

On a related issue, observers say the DOL, may issue a final proposal that will change the highly litigated, so-called “white-collar exemptions” for overtime with respect to workers' duties without giving employers the opportunity to comment on the matter.