I have defended and litigated dozens of independent contractor cases and have found these matters to be intensely fact sensitive and tilted, in large part, towards a finding of employee status by both the agencies and the courts.  I had also noted in a recent post that the US Department of Labor would be issuing new proposed guidelines for these determinations.

Well, the DOL has issued those guidelines; they are targeted towards “curbing” the allegedly wholesale misclassification of employees as independent contractors.  The thrust of the regulations is to include many (think, millions) more workers as statutory employees.  This is because improperly classified people do not receive minimum wage protection and overtime pay.

The proposed regulations will focus upon/emphasize the fundamental issue of whether the person is truly in an independent and self-sustaining business for himself, as opposed to being economically dependent on the particular employer.   Within that general umbrella, there are “economic realities factors” that will inform the classification determination.

The agency posits that these should not be “should analyzed mechanically or in a vacuum,” nor should any single factor be accorded an excessive amount of weight.  The DOL also added that the economic realities that courts utilize to decide independent contractor issues and the FLSA “suffer or permit” test have a wider reach than the common-law control test that Congress rejected when it enacted the FLSA.

The head of the Wage Hour Division stated that “whether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make.”  He added that “the Labor Department supports the use of legitimate independent contractors — who play an important role in our economy — but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses.”

The Takeaway

These proposals, similar to the exemption regulation proposals, draw a bright line between employees and independent contractors.  Employers will find, if these proposals are adopted as written (or nearly so), that treating anyone as a non-employee is going to be very difficult.  That might not be such a bad thing!

The most important criterion for someone to be an independent contractor is whether they are in a business that would survive the termination of a particular “employment” relationship.  The putative employer must ensure, insofar as possible, that the contractor has the “outward” indicia (web site, business address, incorporated, etc) of a “business,” but more importantly, that the contractor actually derives some business income from other sources.

Also, if the work at issue is further away from, rather than closer to (i.e. integral) the main business of the putative employer, the more likely that the person is an independent contractor.  The landscaper engaged by a trucking company is more likely to be deemed an independent contractor than a dispatcher engaged by that same company.