Recently, the U.S. Department of Labor (DOL) has announced a few important changes. Specifically, Labor Secretary Acosta:
- Withdrew the 2015 Administrator Interpretation on the classification of workers as independent contractors;
- Withdrew the 2016 Administrator Interpretation on joint employment;
- Announced plans to issue a Request for Information (RFI) regarding an update to the still-pending 2016 overtime threshold rule.
So what does this mean for employers? Honestly, not a lot — at least not in the short term. The Administrator Interpretations were simply guidance, not binding law. Both the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Worker Protection Act (MSPA) are still the law of the land, governing worker classification and joint employment. The proposed overtime threshold update had not yet taken effect, as it was held up in court. That said, though…
When the 2015 Interpretation covering worker classification was issued, then-Secretary of Labor David Weil emphasized that most workers meet the criteria to be considered “employees.”
There are a number of different factors that go into deciding if a worker can be properly considered an independent contractor (IC). Through this Interpretation, Weil stated the DOL would focus primarily on the “economic dependence” factor — that is: does the worker run their own legitimate independent business, or are they in reality economically dependent on the employer?
What is (and isn’t) changing: Even with the Interpretation being withdrawn, “economic dependence” is still one of several factors DOL inspectors and the courts will take into account when deciding if a worker is truly an IC or in fact an employee. And given the Fair Labor Standards Act’s broad interpretation of “employment,” even with the rise of the “gig economy” it remains true that most workers are properly classified as employees, not ICs. The Interpretation was simply informal guidance designed to clarify the DOL’s interpretation of existing law. The underlying laws haven’t changed. But the withdrawal may signal that the DOL is going to take a less aggressive stance toward worker classification issues than it has in the past.
Suggested action items: This is not the time to run out and reclassify all your employees as ICs! The existing classification factors are in place, just as they’ve always been. You still can’t turn someone into an IC simply by having them sign a contract stating they’re an independent worker if they don’t meet the criteria for that classification. Your best bet is to consult with your labor law attorney to ensure your current worker classifications are OK, and use the existing criteria to evaluate any new jobs you create to ensure they’re properly classified.
The 2016 Interpretation on joint employment defined two types of joint employer arrangements:
- Horizontal — this is where two companies have the same owner(s); may share the same facilities, officers, directors or managers; intermingle or share their operations (for instance, having a single HR or administrative department serving both companies); and may share clients or customers. If under the factors outlined in the Interpretation companies were found to be horizontal joint employers, employees who work for both companies should have their hours combined for the purposes of calculating overtime and eligibility for benefits. Both employers could be on the hook for any wage and hour penalties, even if the violations only took place at one of the companies.
- Vertical — this is where a company employs an outside party to supply workers to the company. Even though technically the workers are employed by the outside party, the company may be considered a joint employer if the workers perform labor that’s integral to the operations of the company; if the company determines when and where the workers are allowed to perform their work; if the company supplies the tools workers need to do their jobs; and/or if the company has hiring and firing authority over the workers. The more of these factors are in place, the more likely it is the company will be considered a joint employer.
What is (and isn’t) changing: As before, the underlying laws are still the same, so this is not the time to throw caution to the wind. The withdrawal of this Interpretation does not mean there’s no such thing as “joint employment” any more. Companies can still be found to be joint employers, and as such can be liable for penalties assessed because of misdeeds on the part of another joint employer. But this withdrawal may signal a relaxing of the DOL’s stance regarding joint employment. For instance, it’s possible you may face less scrutiny if you use a staffing agency to supply some of your workers than you might under the terms of the previous Interpretation.
Suggested action items: Don’t assume that just because the Interpretation has been withdrawn you’re automatically safe from being considered a joint employer. If you use a staffing agency or share employees with another (possibly related) company — or if you’re contemplating either of these things — have your labor law attorney review any contracts or agreements, and take a close look at how you administer the employment for these workers.
Currently, people making a salary over $23,660 a year ($455 a week) and who meet the necessary job duties criteria can be classified as exempt from overtime. This salary threshold hasn’t been updated since 2004, and is now, in fact, below the poverty line for a family of four. So in 2015, the DOL began the process for updating the overtime threshold salary, and announced a proposed new rule (the “Part 541 rule”) in 2016. The new salary threshold would have been $913 a week, or $47,476 per year. However, the rule was challenged in court before it could be implemented, and has been the subject of a temporary injunction ever since.
Recently, in a budget hearing, Secretary of Labor Acosta acknowledged it is “a problem” when the threshold is not updated for a long time, because “life gets a lot more expensive.” However, he also felt the jump from $23,660 to $47,476 was a “shock to the system.” He has in the past stated he thinks a threshold level closer to $33,000 a year might be acceptable.
Accordingly, in his budget hearing testimony, he said within “the next few weeks” the Labor Department will be issuing a Request for Information (RFI) regarding an update to the Part 541 rule. This is the normal first step toward issuing a revised rule.
What is (and isn’t) changing: In the short term, nothing is changing. The proposed rule is still held up in court, and the DOL has not issued a replacement. Even if the DOL moves forward quickly with their proposed RFI, it will likely be sometime next year at the earliest before we see any update to the overtime threshold.
Suggested action items: Keep your eyes peeled for the announcement of the DOL’s RFI. Use the RFI process to send the DOL your thoughts: what the new salary threshold should be, how long is reasonable to go between updates, whether you think there should be any changes to the overtime duties test, and so forth. The DOL will use the input from you and others to help them craft the revised Part 541 rule.
In terms of the underlying laws, nothing has changed. Joint employment and employee classification are still confusing issues, fraught with potential problems for employers. But the DOL may be signaling a new, less aggressive stance toward enforcement. The Part 541 rule regarding the overtime threshold has not changed, but the DOL has signaled a new (lower?) threshold is likely coming in the future. So, while it’s still a good idea to keep your employment law attorney’s number on speed-dial, you may be able to breathe a little easier, at least for the moment.
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