The U.S. Department of Labor’s recently concluded most workers should be classified as employees instead of independent contractors under the Fair Labor Standards Act — a contentious issue playing out in the trucking industry, as well as others, in both the courts, state legislatures and federally.
Referring to the July 15 guidance, the National Law Review wrote, “Independent contractor. Owner. Partner. Member of a limited liability company. Whatever ‘label’ employers use, the DOL has a message for them – most workers are employees under the FLSA.”
The department’s David Weil, who heads wage and hour division, published his interpretation of the FLSA’s “Suffer or Permit” standard in determining worker classification July 15.
“Most workers are employees under the FLSA’s broad definitions,” Weil wrote. “The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”
While the act defines employ as “to suffer or permit to work,” the later-developed “economic realities” test is broader than the common law control test. Congress rejected the control test that had previously determined an employment relationship existed when it passed the FLSA in 1938, the administrator noted.
The control test analyzes if a worker is an employee, based on the employer’s control over the worker. But the economic realities of the relationship, the “suffer or permit” standard broadens the scope of employment relationships covered by the act.
Weil wrote that all of the following economic realities factors must be considered to determine whether the worker is an independent business or economically dependent on the employer:
* Is the work an integral part of the employer’s business? A firm that develops software for a construction company to tracks bids and material orders is not integral to the construction company’s operation, which is indicative of an independent contractor.
* Does the worker’s managerial skill, such as deciding to rent space or purchase materials, affect that worker’s opportunity for profit or loss?
* How does the worker’s investment compare to the employer’s investment? The 10th U.S. Circuit determined that rig welders’ investments in equipped trucks of $35,000 to $40,000 did not indicate they were independent contractors when compared to the employer’s investment of “hundreds of thousands of dollars of equipment at each work site.”
* Does the work performed require special skill and initiative? A worker’s business skills, judgment and initiative, not technical skills, will help decide if the worker is economically independent.
* Is the relationship between the worker and the employer permanent or indefinite? A lack of permanence does not automatically suggest an independent contractor relationship. Weil cites the 2nd U.S. Circuit’s ruling that neither working for other employers nor not relying on the employer as a primary source of income transform the worker into the employer’s independent contractor.
* What is the nature and degree of the employer’s control? The worker must control meaningful aspects of the work performed as a person conducting his or her own business.