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U.S. Department of Labor Withdraws Obama-Era Joint Employer/Independent Contractor Guidance

June 7, 2017 by Christopher R. Fontan

On Wednesday, June 07, 2017, the U.S. Department of Labor (“Department”) withdrew two “guidance letters” previously issued by the Department during the Obama administration.  These guidance letters expressed a desire for “tighter standards” for determining joint employment, in an effort to limit the misclassification of workers as independent contractors.

The Department’s three sentence statement simply said that the two guidance letters issued by the Department in 2015 and 2016 were being withdrawn. Current Labor Secretary Alex Acosta said the agency would withdraw an administrator’s interpretation issued in 2015 aimed at curbing the misclassification of employees as independent contractors as well as another guidance document issued in 2016 on joint employment that called for greater scrutiny of business arrangements in which multiple companies might jointly employ workers. Despite its brevity, the announcement clearly signaled the Department’s intent to revert to its prior policies, saying the removal of the previous 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 2015 guidance letter narrowed the Department’s definition of “independent contractor,” by modifying the test from “control over the work” to a broader “economic realities” test.  At the time, the Department took the position that “most workers are employees under the FLSA’s broad definitions.”  Prior to this, the Department’s Wage and Hour Division looked at how much control an employer exercised over the worker. The more control an employer had (i.e., setting schedules, directing how and where the work was to be done, etc.), the more likely the worker would be considered an employee, and thus entitled to protection under the Fair Labor and Standards Act. The 2015 guidance said the Department would instead look at six economic factors to decide a worker’s status—each revolving around how economically dependent the worker was on the prospective employer.

The 2016 guidance letter offered a similar “re-interpretation” of the definition of “joint employment.” This guidance—which drew heated objections from a broad range of employers when it was issued—increased the likelihood that two employers would be found to be “jointly liable” for wage and hour compliance of an employee or group of employees. Under the 2016 guidance, the hours an employee worked for all joint employers would be aggregated for the purposes of determining overtime and compliance with other FLSA rules.

Importantly, these guidance letters did not have the force of law.  However, many courts have deferred to the Department’s interpretation.  This adds to the importance of the Department’s withdrawal of these earlier interpretations.

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