Labor Department Rescinds Joint Employer & Independent Contractor Guidance: What it Means For Employers

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Last week, US Secretary of Labor Alexander Acosta rescinded two Department of Labor (“DOL”) interpretation letters, which included expansive takes on joint employment and classification of workers as independent contractors. The previous letters, issued during the Obama administration, garnered powerful protest and were viewed as a fundamental threat to employers, especially franchises and industries reliant on temporary workers. While the rescission of the letters is a positive development for employers and supports the less aggressive enforcement stance of the current administration, the underlying concepts contained in those letters still apply.

If determined to be a “joint employer,” a company can be jointly liable with another company for complying with the Fair Labor Standards Act—the primary federal law governing minimum wages and overtime pay—and the Migrant and Seasonal Agricultural Worker Protection Act.

The DOL’s previous (now rescinded) marching orders applied joint employer liability to both vertical and horizontal employment relationships. In other words, an employer could be liable as a “joint employer” vertically where it hires another company who in turn hires the employee. The focus in vertical joint employment is on the relationship of the employee to each employer and whether the “economic realities” of the relationship show an economic dependence on both employers.  Examples of vertical joint employment under the DOL guidance could include temporary staffing agencies and host employers, subcontractors and general contractors, and franchisees and franchisors.

Similarly, joint employment may exist horizontally where an employee has employment relationships with two or more employers at the same time and the employers are sufficiently associated or related with respect to the employee such that they are both responsible for the actions that violate the law or for compliance, such as paying overtime on the cumulative hours worked. The focus in horizontal joint employment is on the relationship of the employers to each other. For example, when an employee works at two locations of the same restaurant brand, both of which are operated by separate legal entities, the two entities may be horizontal joint employers if they have the same individual owner, use the same payroll processing company, and the managers of each share supervisory responsibility of the employee.  Stated differently, according to the DOL, related entities who “share” employees may be horizontal “joint employers.”

As it relates to the misclassification of workers, the now-rescinded DOL interpretation had strongly stated that despite meeting traditional tests for contractor status, “most workers are employees.” The DOL noted that employees improperly labeled as independent contractors may miss out on things like minimum wage and overtime pay. Thus, the DOL applied an expansive definition of employee and was more likely to find an employment relationship. Here, again, the DOL focused on the “economic realities” of the relationship, looking to several factors, such as:

     • the employer’s control;
     • the employee’s opportunity for profit or loss;
     • who provides the necessary equipment and materials;
     • whether the service requires a special skill;
     • the permanency of the relationship, and;
     • whether the service is integral to the employer’s business (again, defaulting to employment status in most situations).   

Despite the rescissions, the concepts in the previous guidance may still haunt businesses. The federal statutory language, interpreting regulations, and relevant case law have not changed. In fact, the now-rescinded guidance specified that it was merely restating or summarizing existing law. Arguably, employers will still confront the expansive definitions in future proceedings brought by former or current employees. 

Further, the National Labor Relations Board (“NLRB”), the first agency to adopt a more liberal standard of joint employment, has not changed its course. It remains to be seen if its steadfast commitment to a more liberal standard will remain and be applied to decisions under the National Labor Relations Act. President Trump has yet to pick nominees for the five-member board’s two open seats, which could impact the future of the NLRB’s adherence to the broader standard. 

Last week’s reversals demonstrate, however, a marked shift in the DOL’s position on existing and future agency enforcement. Those with existing audits can likely use the reversal as a tool toward resolution.  Further, employers can likely expect either fewer or less aggressive administrative inquiries and investigations going forward. Certainly, such a forecast is consistent with the administration’s overall philosophy of eliminating regulations and barriers to business across the board. 

Regardless of where the chips may fall, this is a good reminder to proactively manage your business’s relationship with other entities and contingent workers—whether contractors or temporary workers. Time spent reviewing and refreshing your employee pay practices, job descriptions, and responsibilities is always time well spent. Opportunistically, employers can use these changes to implement talent and other organizational structure changes while limiting potential impact on morale.

Should you require assistance with these suggested steps, please contact Catherine Strauss, Tami Earnhart or any member of the Ice Miller Labor, Employment, and Immigration Practice for further guidance. 

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