Recent developments at the National Labor Relations Board (NLRB) and the U.S. Department of Labor’s Wage and Hour Division (DOL) could make it more difficult for businesses to classify workers as independent contractors. On January 6, the NLRB and the DOL announced that they entered a Memorandum of Understanding which provides for and encourages interagency cooperation through “information sharing, joint investigations and enforcement activity, training, education, and outreach.” In a separate press release, the NLRB stated that the Memorandum of Understanding “will allow for better enforcement against… misclassification of workers as independent contractors.”
Businesses that use independent contractor work would pay attention to the news out of Washington, D.C., because on October 11, the U.S. Department of Labor (DOL) announced its long-awaited proposed rule on contractor classification. The proposed rule would impose a six-factor “economic reality test,” with all the factors equally weighted. The six-factor test would look broadly at the “totality of the circumstances” to determine whether a worker is an independent contractor or employee under the Fair Labor Standards Act (FLSA).
The current rule prescribes a five-factor test to guide the analysis, two of which were designated as “core factors” carrying more weight: 1) nature and degree of control over the work and 2) the worker’s opportunity for profit or loss. As such, under the “core factor” test, if these two factors point in the same direction – an independent contractor – then it is likely that the worker is properly classified as an independent contractor.
By contrast, the proposed six-factor totality test eschews any predetermined weighting. Instead, it requires that each factor be considered in light of the economic reality of the entire activity at issue. The six factors are:
Why Should You Attend:-
These developments at the DOL and the NLRB could mean trouble for employers that misclassify workers as independent contractors. For example, an NLRB investigation of an unfair labor practice that leads to the conclusion that certain workers have been misclassified as employees could lead to the DOL finding a company is liable for unpaid overtime and minimum wages.
Considering this heightened scrutiny and potential narrower legal standard, it is now more important than ever to evaluate how companies structure an independent contractor relationship. It is particularly important for employers to seek guidance from experienced counsel when developing and implementing policies related to working with independent contractors.
As the DOL, the IRS, the NLRB, and various other federal and state agencies have their own tests for determining independent contractor vs. employee status for various reasons, employers have a keen interest in staying apprised of the developments in this area of employment law.
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