DOL Withdraws Guidance on Independent Contractors

Posted on: July 5th, 2017 by Leaders' Choice Staff No Comments

The Trump administration has withdrawn guidance issued by the Department of Labor under President Obama that had tightened restrictions on joint employment and independent contractors.

The move may give only the semblance of respite though, because the enabling regulations are still in place and so is established case law on the subject. The move only affects guidance that the DOL had issued to clarify regulations that were also codified during the last administration.

In other words, for now the regulations remain in place and if the administration wants to tackle those, it would have to start from scratch in the rule-making process.


What it changed

The guidance that Fed-OSHA has removed from its website did two things:

  • Defined in strict terms the situations in which a worker is considered an employee under an “economic realities” test; and
  • Expanded the joint employer doctrine. It did this by saying it would consider “whether, as a matter of economic reality, the employee [was] economically dependent on the potential joint employer.” This mostly concerns franchise operators and the franchising company.

Under now-withdrawn Jan. 20, 2016 guidance, joint employment can be “horizontal” or “vertical”:

Horizontal employment: When an employee is employed by two or more “technically separate but related or overlapping employers,” such as separate restaurants that share economic ties.

Vertical employment: Staffing agency arrangements or similar operations where the “employee of the intermediary employer is also employed by another employer.”

According to the guidance, factors to be considered under this test include:

  • The extent to which work performance is an integral part of the employer’s business.
  • Workers’ opportunity for profit or loss depending on their managerial skills.
  • The extent of the relative investments of the employer and the worker.
  • Whether the work requires special skills and initiatives.
  • How permanent the relationship is.
  • The degree of control exercised or retained by the employee.


In announcing the changes, Alexander Acosta, the U.S. Secretary of Labor, said:

“Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law… The Department of Labor will continue to fully and fairly enforce all laws within its jurisdiction.”


How it affects employers

Courts have been using this guidance when considering cases centering on independent contractors and rescinding the guidance may not have an impact on future litigation.

Also, many states have adopted their own version of the regulations which will typically supersede the Federal rules since they are most likely to be applied locally.

However, going forward, investigations into complaints made to the Fair Labor Standards Board that touch on these issues would likely no longer rely on the repealed language when determining whether action should be taken against an employer.


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