Action Item: On July 15, 2015, the U.S. Department of Labor ("DOL") issued guidance warning against misclassification of employees as "independent contractors," enumerating the many evils of such misclassification, and emphasizing that the Fair Labor Standards Act ("FLSA") has an expansive definition of what it means to "employ" someone. The fact that this interpretation comes just two weeks after the DOL unveiled a proposed rule to expand the number of workers entitled to minimum wage and overtime pay (which you can read more about here) cannot be ignored. There is no mistaking the DOL's vigor for the misclassification issue—described as a nationwide epidemic.
Why worry about misclassification? According to the DOL, misclassification inflicts widespread harm on workers, on companies not engaged in the practice, and to the government. For example, misclassified workers are denied critical benefits (i.e., minimum wage and overtime pay, workers' compensation, and unemployment insurance). And, employers misclassify workers to skirt the law, denying legal protections to workers (i.e., protections provided by labor and employment laws). Misclassification also results in competitors being cheated and undercut for following the rules, as well as lower tax revenues to the government.
The message is loud and clear: this is the DOL's "casting call" for more misclassification complaints. These "instructions" from the DOL describe a malleable, incredibly broad standard for determining who is an "employee," which preserves the DOL's discretion in applying it. There is no question that true misclassification is invidious and harmful, and should be eradicated. However, the DOL has thus far focused on a "gotcha game" of catching purported wrongdoers, rather than spending resources on educating employers about compliance with what has always been an extremely complex, nuanced set of regulations. On the optimistic side, this new guidance could serve as a framework for more education-based efforts.
Finally, in deference to the DOL, it is true that, under the FLSA, "employ" means "to suffer or permit to work." Once again, however, given the current DOL's leadership and recent track record, this effort seems targeted as another vehicle whereby employers may suffer for permitting someone to work.
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