August 7, 2015
Many employers have classified workers as “independent contractors” because a true “independent contractor” is exempt from the labor laws on minimum wage, overtime, workers compensation and unemployment insurance issues. It is safe to say that employers will soon see a crack down on use of this designation, because on July 15, 2015, the Wage and Hour Division of the US Department of Labor issued a long awaited statement of the factors it will now use to determine whether a worker is properly classified as an “independent contractor.” Its reason for doing so was stated as follows: “In recent years, employers have increasingly contracted out or otherwise shed activities to be performed by other entities through, for example, the use of subcontractors, temporary agencies, labor brokers, franchising, licensing and third-party management. Among the many consequences of these ‘fissured workplaces,’ misclassifying employees as independent contractors is among the most damaging to workers and our country.” The Division then said that “…[w]hether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make.” The Division went on to say that it plans to enhance its own enforcement of applicable rules and to intensify its cooperation with the IRS and the states [including California] on policing what it considers to be the misclassification of workers as “independent contractors.”
The Division also issued a 15 page Memorandum regarding the factors on which it relies to determine whether a particular worker has been properly classified as an “independent contractor.” The principal considerations, as noted above, are the “economic realities” of the relationship. The Memorandum concludes, however, with this ominous statement about how the results that will typically be reached following an examination of the “economic realities:” “In sum, most workers are employees under the FLSA’s [Fair Labor Standards Act] broad definitions.”
Most California employment law practitioners are already familiar with the rules regarding the determination of whether an employee is properly classified as an “independent contractor,” because California governmental authorities have always had a skeptical view of an employer’s use of this classification. In California, an employer is usually presumed guilty of misclassification until proven innocent.
If you have any questions about the foregoing, please feel free to contact me at (805) 543-4171 or at [email protected].
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