Tag Archives: employee status

July 15, 2015

Independent Contractors: New DOL Interpretation Focuses on Economic Dependence of Workers

Cave_BBy Brad Cave 

If you hire workers as independent contractors, you need to review that status with fresh eyes in light of a new Administrator’s Interpretation issued by the U.S. Department of Labor (DOL). In his July 15th Interpretation, Wage and Hour Division Administrator David Weil stresses that most workers are employees under the Fair Labor Standards Act (FLSA), not independent contractors. Multiple factors still come into play when determining independent contractor status but the DOL ultimately will look to whether the worker runs his or her own independent business or instead, is economically dependent on the employer. 

Broad “Suffer or Permit to Work” Standard 

The FLSA defines “employ” as “to suffer or permit to work.” According to Administrator Weil, this broad definition will encompass most workers. He notes that the definition had roots in state child labor laws which sought to ferret out employers who used children as laborers illegally.

He also cites Supreme Court and federal court cases that state that the “suffer or permit to work” standard has broad applicability and extends to the farthest reaches in order to achieve the goals of protecting workers under the FLSA. 

Economic Realities Test 

Noting that courts have developed a multi-factor “economic realities” test to determine whether a worker is an employee or an independent contractor, the Administrator’s Interpretation goes through each factor, providing examples and cases that help in the analysis. While the factors haven’t really changed, here are some important distinctions made in this Interpretation: 

  • A contract setting forth an independent contractor relationship “is not relevant” in determining whether the worker is properly classified as an independent contractor; the actual working relationship is what matters, not the label given to it by the parties.
  • The individual’s opportunity to make a profit or realize a loss on the job must include whether the individual’s managerial skills result in that profit or loss; in other words, a worker’s willingness or ability to work more hours or work more efficiently is not enough to suggest independent contractor status, instead the individual must be making managerial decisions about hiring assistants, purchasing materials, advertising, etc., in order to support independent contractor status.
  • The worker’s investment in tools, equipment and doing the job must be compared to the employer’s investment; a worker who provides a few essential tools to do the job may not be enough to contribute toward independent contractor status; instead, the worker’s investment must be significant, particularly when compared to the entity’s investment in the job.
  • Being highly skilled in a particular type of work is not sufficient in suggesting independent contractor status as many employees are highly skilled in the services they provide to their employer; instead, an independent contractor must include “business-like initiative.”
  • The degree to which the entity controls the work of the individual should not play an oversized role in the analysis; many workers today are not under constant supervision of their employers but that lower degree of monitoring and control does not make them independent contractors. 

The Administrator’s Interpretation establishes that no single factor in the economic realities test is determinative and each factor should be analyzed in terms of whether the worker is economically dependent on the employing entity or is truly in business for him- or herself. 

Time to Review Your Independent Contractor Classifications 

The DOL has made misclassification of employees a high priority for the past few years and with this Administrator’s Interpretation, it is signaling its intent to crack down even further on businesses who classify workers as independent contractors. We suggest that you review the Interpretation, study the examples and then audit your independent contractor relationships to determine whether your classifications will pass DOL scrutiny. In difficult cases, consult with your employment counsel for guidance. Conducting the review yourself and making any necessary changes will go a long way in avoiding headaches and potential liability should the DOL appear at your door for an audit. And, keep in mind that this Interpretation does not carry the force of law. The Administrator’s view will undoubtedly be challenged in court as the DOL ramps up its aggressive posture.

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May 12, 2014

Independent Contractor Status Dependent On More Than One Factor, Says Second Colorado Court

Brad WilliamsBy Bradford J. Williams 

A second division of the Colorado Court of Appeals has just rejected a stringent, single-factor test for determining whether a worker is an employee or independent contractor for purposes of receiving unemployment insurance benefits. On May 8, 2014, a division of the Court of Appeals issued a decision in an unemployment insurance tax liability case, rejecting longstanding case law holding that a worker is an employee, and thus entitled to unemployment insurance benefits, unless he “actually and customarily provides similar services to others while working for the putative employer.” Visible Voices, Inc. v. ICAO, 2014 COA 63.  

For years, the Colorado Division of Employment and Training has rejected claims that workers are independent contractors, and thus ineligible for unemployment insurance benefits, based solely upon the fact that they do not provide similar services to others while working for the putative employer. It has not mattered whether the workers were directed or controlled by the putative employer, whether they maintained separate business entities, whether they set their own hours, whether they were trained by the putative employer, whether they were paid an hourly or fixed rate, whether they provided their own equipment, whether they had their own offices, or whether they advertised their own businesses. If they did not provide similar services to others while working for the putative employer, they were almost always deemed to be employees for purposes of receiving unemployment insurance benefits. 

In rejecting this stringent, single-factor test, the Visible Voices court followed the 2012 lead of another division of the Colorado Court of Appeals in Softrock Geological Servs. v. ICAO, 2012 COA 97 (cert. granted Mar. 25, 2013). First breaking with the decades-old, single-factor assessment, the Softrock court held that the Division of Employment and Training must instead apply a multi-factor test to determine whether an individual “is customarily engaged in an independent trade, occupation, or business related to the service performed.” This multi-factor test considers factors set forth in Colorado statute. 

While broadly adopting the Softrock court’s reasoning, the Visible Voices court went even further, holding that factors not listed in the Colorado statute may also be considered in assessing independent contractor status. The Visible Voices court further noted that some of the statutory factors might also not be relevant to a particular worker depending on the circumstances. In short, the Visible Voices court concluded that virtually any relevant circumstances may be considered when weighing independent contractor status, and rejected the argument that the multi-factor test is limited to just those factors specifically delineated in statute. 

By choosing to consider multiple factors, the Visible Voices court expressly declined to follow Western Logistics, Inc. v. ICAO, 2012 COA 186 (cert. granted Mar. 25, 2013), in which yet another division of the Colorado Court of Appeals recently reaffirmed the decades-old cases effectively mandating a single-factor test. Unlike the Western Logistics court, the Visible Voices and Softrock courts have decided that no single factor is determinative of independent contractor status. 

Two divisions of the Colorado Court of Appeals have now rejected the single-factor test that has long stymied putative employers’ attempts to prove that their workers are independent contractors for purposes of unemployment insurance benefits. However, the Colorado Supreme Court will have the last word on the proper test for determining independent contractor status as it is currently reviewing both the Softrock and Western Logistics cases. The Supreme Court heard oral arguments in both cases on March 6, 2014 (audio of the oral arguments may be accessed here), and a decision is expected in the coming months. Based on the oral arguments, a favorable ruling for putative employers seems possible. We will let you know the outcome as soon as the Supreme Court rules on this issue.

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