Federal Department of Labor Issues Opinion on Independent Contractors

On July 15, 2015, the federal Department of Labor (“DOL”) issued an Administrator’s Interpretation setting forth how the DOL will make the determination whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (“FLSA”).  Courts use the multi-factorial “economic realities” test which focuses on whether the worker is economically dependent on the employer or in business for him or herself.  While most misclassified employees are labeled “independent contractors,” the DOL has apparently seen an increasing number of instances where employees are labeled something else, such as “owners,” “partners,” or “members of a limited liability company.”   The determination of whether the workers are in fact FLSA covered employees is also made by applying an economic realities analysis.

How will this test work on the federal level?  Well, the DOL looked at this economic realities test in light of the broad coverage of the FLSA.  The FLSA applies to any individual employed by an employer, with employ meaning that they are “suffered or permitted” to work.  That is the same broad definition of “employ” that can make an employer liable for paying wages for an employee working at night from home answering work emails.  If the employer knows about that work and allows it (“permits” it), that employer should probably be paying for the hours spent handling those work emails.  How to track that time is the subject of an article in the future!  As the DOL explains in this opinion, a worker who is economically dependent on an employer is “suffered or permitted” to work by the employer.  As the DOL put it, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA.  The opinion can be found at: http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm

In Maine, as of January 1, 2013, a law went into effect that combined the test for independent contractor versus employee for workers compensation, unemployment coverage, and wage and hour.  In the past, different branches of state government had different tests.  Treating an employee as an independent contractor is dangerous – not only may it involve a workers’ compensation penalty and a DOL audit, but tax penalties for not doing wage deductions and a possible wage and hour claim.  For a worker to be an independent contractor – under Maine law – key factors include:  1) the worker has their own independent business;  2) the worker  has the essential right to control the means and progress of the work;  3) the individual must have the opportunity for profit or loss (being paid by the hour for all hours worked would sound more like an employee as opposed to an independent);  4) the individual hires and pays their own assistants and decides who will do the work;  5) the worker makes their services available to others in the community.  There is then a second list from which several but not all the factors must be met.  For a full list of the factors and tests involved, or if you would like assistance to ensure that your business is in compliance, contact Rebecca Webber at 784-3200 or rwebber@sta-law.com.

This article is not legal advice but should be considered as general guidance in the area of employment and corporate law. Rebecca Webber is an employment attorney; others at the firm handle business and other matters. You can contact us at 784-3200 (telephone). Skelton Taintor & Abbott is a full service law firm providing legal services to individuals, companies, and municipalities throughout Maine. It has been in operation since its founding in 1853.