HR Management & Compliance

DOL rescinds joint-employment, independent contractor guidance

The U.S. Department of Labor (DOL) has withdrawn two major Obama-era guidance documents, one addressing joint employment and one dealing with independent contractors.

The move, while not a surprise, is good news for employers, according to H. Juanita Beecher, an attorney with Fortney & Scott and editor of Federal Employment Law Insider. The Obama administration tried to find a way to deal with shifting employer-employee relationships, she said. The effort included a focus on outsourcing and the use of staffing companies as well as a big push to examine whether independent contractors were actually employees. By rescinding the guidance documents, the DOL is backing off its “aggressive” initiative, Beecher said.

The Society for Human Resource Management (SHRM) called for the DOL to rescind the documents during a congressional hearing earlier this year, arguing they complicated an already complex area of the law. A nonpartisan think tank, however, defended the documents, arguing they adopted existing case law and provided needed clarity on new issues created by the 21st century economy.

Guidance documents

The two documents, released by the Wage and Hour Division (WHD), were Administrator Interpretations (AIs). The first AI rescinded was FLSA2015-1, The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors (issued July 15, 2015). The document narrowed the DOL’s interpretation of “independent contractor” and declared that “most workers are employees” under the Fair Labor Standards Act’s (FLSA) broad definitions. The guidance directed employers to use a six-factor test to evaluate the economic reality of the situation when classifying workers.

The second AI, FLSA2016-1, Joint Employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act (issued January 20, 2016), clarified that the DOL believed joint employment can exist, for FLSA purposes, in two circumstances: (1) when an employee has two or more separate but related or associated employers and (2) when one employer provides labor to another employer and the workers are economically dependent on both employers.

Employer takeaway

The DOL released few details about the rescission, saying only:

Removal of the [AIs] does not change the legal responsibilities of employers under the [FLSA] and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law. The department will continue to fully and fairly enforce all laws within its jurisdiction, including the [FLSA] and the Migrant and Seasonal Agricultural Worker Protection Act.

The DOL confirmed that the announcement referred to FLSA2015-1 and FLSA2016-1, which already have been removed from its website, but declined to say whether the rescission will affect related documents such as DOL fact sheets, which were still live.

Beecher, however, said she expects supporting documents to be removed soon. Those documents could include, among others, Fact Sheet #35: Joint Employment Under the Fair Labor Standards Act (FLSA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA) (issued in January 2016) and Fact Sheet #28N: Joint Employment and Primary and Secondary Employer Responsibilities under the Family and Medical Leave Act (FMLA) (issued in January 2016).

For now, that means the DOL will address the issues the way it did under the Bush administration, Beecher said. Joint employment wasn’t a new issue created by the Obama administration, she noted; it just expanded the definition.

Meanwhile, employers also should be aware of joint-employment test adopted by applicable courts. Federal appellate courts have adopted various approaches for determining joint employment in recent years. The U.S. 4th Circuit Court of Appeals (which covers Maryland, North Carolina, South Carolina, Virginia, and West Virginia) added to the array of tests just this year, rejecting other courts’ rulings and adopting its own two-step, six-factor test.

What’s next?

Under the Obama administration, the National Labor Relations Board (NLRB) adopted interpretations similar to those in the DOL’s AIs for enforcing the National Labor Relations Act (NLRA), Beecher noted. So it’s possible the Board will change course as well. That would take some time, however, because the Board adopts its positions through rulings (as opposed to publications) and will still have an Obama administration General Counsel for a few more months.

Also, employers might see movement in the opposite direction. One agency to watch is the Equal Employment Opportunity Commission (EEOC), Beecher said. Earlier this year, Acting Chair Victoria A. Lipnic said during a panel discussion that she intends to focus on the evolution of employment relationships, giving special attention to employers’ joint-employment responsibilities, the use of staffing agencies, and the “gig economy.”

Congress also has shown interest in addressing gig worker issues, Beecher noted. For example, bills in both the House and the Senate would test portable benefits for independent contractors, temporary employees, and self-employed individuals.