Department of Labor Issues Administrator’s Interpretation To Combat Worker Misclassification

The Fair Labor Standards Act (“FLSA”) requires the payment of minimum wage and overtime to employees. Many employers circumvent the law by classifying workers as “independent contractors.” On July 14^th, the United States Department of Labor (“the Department”) issued an Administrator’s Interpretation to address misclassification of workers. It uses the straightforward definition of “employ” in the FLSA to apply the act to an extremely broad range of workers. If courts accept this interpretation and faithfully employ it, the FLSA will apply to many workers currently classified as “independent contractors.”

In February of 2010, the White House Task Force on the Middle Class issued its annual report, and announced that the Department would commence a new effort to prevent employees from being classified as independent contractors. Since then, the Department has instituted enforcement actions against employers who misclassified their workers, and entered into partnerships with states and other federal agencies, such as the Internal Revenue Service, to fight misclassification.

The Department has now taken the next step in its misclassification initiative by issuing an Administrator’s Interpretation. The Department issues such interpretations when it believes that guidance is appropriate with respect to a general application of the law. The current Administrators Interpretation starts from the premise that “Misclassification of employees as independent contractors is found in an increasing number of workplaces in the United States…” It notes that such misclassification deprives employees not only of the wages protections of the FLSA, but also prevents them from receiving unemployment insurance and workers compensation. It further notes that misclassification also deprives the government of tax revenue, and creates an uneven playing field for employers who properly classify their workers.

The FLSA defines the term “employ” as to “suffer or permit to work.” The Department notes that this definition was meant to be applied broadly, and was more expansive than the common law tests to determine if a worker was an employee or independent contractor.

Courts applying the FLSA have used an “economic realities” test to determine whether workers or employers. The purpose of the test is to determine whether the worker is economically dependent on the employer or is in business for him or herself. The Department continues to apply this test, but emphasizes that the test “should be guided by the FLSA’s statutory directive that the scope of the employment relationship is very broad. “ The Department’s overview of the economic realities test, and its review of each factor involved in the test, apply this broad definition to demonstrate how workers, even if they have some autonomy in performing their job duties, are still “employees” rather than “independent contractors.”

The Administrator’s Interpretation concludes that:

“In sum, most workers are employees under the FLSA’s broad definitions. 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.”

It remains to be seen what deference the Courts will give to the Administrator’s Interpretation. Generally, courts give deference to an administrative agency’s interpretation of statutes over which the agency has expertise and enforcement authority. Courts will not give such deference, however, if they believe the agency’s interpretation is either not reasonable or beyond its expertise. If the courts do follow the Department’s latest Administrator’s Interpretation, and faithfully apply it, then it will lead to several more workers being classified as employees, rather than independent contractors.