Administrator s Interpretation No : Misclassification and the FLSA

Transcription

1 Administrator s Interpretation No : Misclassification and the FLSA Catalina Landing 320 Golden Shore, Suite 410 Long Beach, California (562) Presented by Jaime B. Laurent Esq.

2 United States Department of Labor DOL Mission Statement: To foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.

3 The Fair Labor Standards Act The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. The DOL can investigate and prosecute violations of the FLSA. Employees are covered by the Fair Labor Standards Act (FLSA) on an individual basis when they are engaged in interstate or foreign commerce on the job. Interstate commerce means any work involving or related to the movement of persons or things (including intangibles, such as information) across state lines or from foreign countries.

4 Initial Considerations The memo reads like a plaintiff-worker s summary judgment brief than any neutral presentation of federal law. It is the DOL s position that: 1. Most workers should be classified as employees; 2. It will aggressively police how employers classify their workers; and 3. It will punish employers that get it wrong.

5 The memo reiterates the following basic understanding: Overview The FLSA covers more workers that would be deemed employees under the common law control test; Federal courts use the multi-factor economic realities test to assess if a worker is an FLSA employee; No one factor is determinative; Neither an independent contractor agreement nor the issuance of a 1099 is determinative of status.

6 Economic Dependence The purpose of the Test is to assess whether a worker is economically dependent on an employer. A worker is an employee if (s)he is economically dependent on the business. A worker is an independent contractor only if the worker is not economically dependent on an employer, but is in business for him or herself. The Memo takes the position that the test must be guided by the FLSA s statutory directive that the scope of the employment relationship is very broad. Hence, the memo s conclusion most workers are employees under the FLSA.

7 Factor 1: Integral to Business The Memo notes that this factor is compelling, and appears to have a heightened importance in the analysis. Work can be found to be integral to a business even if the work is just one component of the business and is performed by hundreds or thousands of other workers.

8 Factor 2: Potential for Profit/Loss While the Memo recognizes that a worker truly in business for him or herself faces the possibility of a loss, it places a restriction on this factor: The potential for profit/loss must be linked to the worker s managerial skill. E.g: Workers ability to work fewer or more hours at their own discretion does not show managerial skill and therefore does not equates to an opportunity for profit or loss.

9 Factor 3: Relative Investments The worker should make an investment into his business. But, the relative investments between the worker and a business controls: The worker s investment must be significant in nature and magnitude relevant to the employer s investment to indicate that the worker is an independent businessperson. This seems to create a quantitative analysis. But no real direction on what the ratio between the workers investment and the business investment should be: E.g.: The AI dismisses the investment of $35,000 to $40,000 by rig welders as, essentially, an inconsequential amount in light of the employer s hundreds of thousands of dollars of equipment at each work site. A worker s investment should not be relatively minor.

10 Factor 4: Skill / Initiative The Memo emphasizes a worker s business skill, judgment, and initiative and not his or her technical skills under this factor. The analysis focuses on the worker s business acumen.

11 Factor 5: Permanency of Working Relationship Permanency or indefiniteness of the relationship can suggest employment status. Extended working relationships will support a finding of employee status. Indefiniteness does not always mean independent contractor status: E.g. where the work is seasonal, the indefiniteness of the work will not support a finding of independent contractor status. The DOL will focus on the operational characteristics intrinsic to the industry.

12 Factor 6: Degree of Control The Memo specifically de-emphasizes the importance of this factor and says it should not play an oversized role in the analysis. The Memo focuses on two factors: Does the worker have control over meaningful aspects of the work? Does the worker actually exercise such control? A company s exercise of control due to the nature of its business, regulatory requirements, or its desire to maintain high customer satisfaction are not permissible reasons to exert control over independent contractors and still indicate an employee relationship. The fact that workers control the hours they work is largely insignificant where such freedom is typical in the worker s specific industry.

13 The Memo is not binding Law. Closing Comments The Memo s application of the economic realities test is extraordinarily liberal Its far broader than how many courts have applied the test. The DOL requires proactive compliance by employers. The DOL is ready to use its enforcement tools against companies who do not follow the Memo.

14 This Program is for informational purposes and not intended to be legal advice. The facts and circumstances of your individual situation could significantly affect the outcome of any matter you may have. You should consult competent legal counsel to review your individual circumstances. via via telephone: (562)