United States: DOL Withdraws Joint Employer And Independent Contractor Guidance

Last Updated: June 21 2017
Article by Michael J. Lotito and Ilyse W. Schuman

In a three-sentence press release, Labor Secretary Alexander Acosta announced the withdrawal of two Wage and Hour Administrator's Interpretations (AIs) on joint employment and independent contractors. While the AIs were not binding law, they did represent a significant shift in wage and hour law advocated by the prior administration, and served as the Wage and Hour Administration's (WHD) justification for taking certain enforcement actions. While the AIs' rescission is being hailed by the employer community, it is just the first step in clarifying the new administration's position on both key issues.

Administrator's Interpretation No. 2016-01, issued in January 2016, established new standards for determining joint employment under the federal Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). In this AI, the DOL took the position that "[t]he concept of joint employment, like employment generally, should be defined expansively under the FLSA and MSPA." In addition, for the first time, the WHD differentiated between "horizontal" joint employment and "vertical" joint employment.

Administrator's Interpretation No. 2015-1, issued in July 2015, addressed the classification of independent contractors as employees under the FLSA. The WHD took a similarly expansive view of employment in this AI, stating, "most workers are employees under the FLSA's broad definitions," essentially creating a presumption of employment for workers.

Both AIs were criticized for creating informal standards outside of the notice-and-comment process required for formal agency rulemaking.

Notably, in rescinding these documents, the DOL emphasizes that "[r]emoval 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 DOL's actions can be seen as the first in a series of steps the agency might take to steer the Department from the "fissured workplace" theory advocated by former WHD Administrator David Weil to a more "traditional" view of employment relationships. Under the fissured workplace premise, workplace models such as franchising and the use of independent contractors and temporary employees are believed to contribute to greater wage and hour violations. In essence, the AIs extended who could be considered an employer for liability purposes.

With respect to defining the employment relationship, Secretary Acosta's views appear to deviate from that of Weil's. During his confirmation hearing to be the next Labor Secretary, Alex Acosta was asked about his views on joint employment. Senator Lamar Alexander, Chairman of the Committee on Health, Education, Labor and Pensions, specifically asked Mr. Acosta about the standard that should be used to determine when an entity is rendered an employer. Mr. Acosta responded that he preferred the "direct and immediate" control standard, which he considers the "traditional" factor used in making this assessment, versus the "untraditional" indirect and unexercised control method.

In addition, he expressed his intent—if confirmed—to reinstate the practice of issuing Opinion Letters in place of sub-regulatory AIs. Therefore, it is expected that the AIs' removal will eventually be followed by Opinion Letters, possibly on the issue of joint employment and independent contractors. However, this process will likely have to wait until a new Wage and Hour Administrator is appointed.

The removal of the AIs does nothing to resolve the confusion surrounding joint employment in the labor law context. The National Labor Relations Board's pivotal decision in Browning-Ferris Industries fundamentally changed the joint-employer standard under the National Labor Relations Act (NLRA). Although that decision has been appealed to the D.C. Circuit, its resolution is far from certain. During the last congressional session, lawmakers proposed legislation to clarify the joint-employer definition, but it did not advance.

Moreover, the AIs' rescission does not resolve the conflicting interpretations of joint employment and independent contractor status under various state laws, so employers are no closer to a bright-line standard on either issue. What the DOL's move shows, however, is that the current administration is taking steps to rein in the expansive interpretation of "employment" that had evolved in recent years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael J. Lotito
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