Most Workers Qualify as "Employees" For Purposes of the Fair Labor Standard Act

Most Workers Qualify as “Employees” for Purposes of the Fair Labor Standard Act

Recently, the U.S. Department of Labor (“DOL”) issued interpretative guidance on the classification of workers as “employees” versus “independent contractors” under the Fair Labor Standards Act (“FLSA”). The FLSA provides minimum wage, overtime compensation, unemployment insurance, and workers’ compensation requirements for both private and public employers.

Under the DOL’s interpretation, a worker is classified as an “employee” and subject to the FLSA protections if the FLSA definition of “to employ” is satisfied. Under FLSA, “to employ” includes “to suffer or permit work” and therefore has “broad applicability” according to the DOL.

To determine if a worker meets the definition, the DOL applies the “economic realities test.” This test is broader than the “control test” typically applied by state courts in categorizing workers as either employees or independent contractors. It consists of six questions in determining the classification of a worker:

1. Is the work an integral part of the employer’s business?
2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
3. How does the worker’s relative investment compare to the employer’s relative investment?
4. Does the work performed require special skill and initiative?
5. Is the relationship between the worker and the employer permanent or indefinite?
6. What is the nature and degree of the employer’s control?

In applying these factors, the DOL predicted that “most workers are employees under the FLSA’s broad definitions.” Based on this conclusion, employers are likely to face increased DOL investigations and enforcement actions, as well as private litigation, related to the misclassification of workers as independent contractors. As such, employers should proactively re-visit their use and classification of independent contractors.

Messerli & Kramer’s litigation attorneys are not only experienced in representing clients in employment litigation but also counsel, advise and audit clients with respect to employment-related policies and procedures, including worker classification, to minimize the risk of litigation. Because an ounce of prevention is worth a pound of litigation, please contact us to discuss your employment law needs.

This communication does not constitute legal advice or create an attorney client relationship. Please consult an attorney if you have questions.