DOL Memo Means Time to Review Worker Misclassification

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By Chris Opfer and Tyrone Richardson

July 16 — New Labor Department guidance on worker misclassification means that employers should take a good, hard look at the way they distinguish between employees and independent contractors, but not necessarily that they should change those classifications, employment lawyers told Bloomberg BNA July 16.

DOL Wage and Hour Division Administrator David Weil said in guidance issued July 15 that “most workers” should be considered employees covered under the Fair Labor Standards Act. That's because the six-factor “economic realities” test that courts use to review worker classifications reflects the “very broad” scope of an employment relationship as defined by the statute.

Marc Bernstein, a partner in Paul Hastings' New York office, and Eric B. Meyer of Dilworth Paxon in Philadelphia told Bloomberg BNA that the memo is a clear signal that the DOL is focusing on worker misclassification and is likely to clamp down on employers that incorrectly designate employees as independent contractors.

But Bernstein cautioned that courts may not give deference to the Labor Department's interpretation of the law. He charged that the DOL “cherry-picked cases that it thought would support its position.”

In 2012, the U.S. Supreme Court declined to give deference to a DOL interpretation of the FLSA that certain pharmaceutical sales representatives shouldn't be considered exempt “outside salesmen” (Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (2012) ). Justice Samuel Alito wrote in the decision that the interpretation “lacks the hallmarks of thorough consideration”.

Although the department may have glossed over some less favorable worker classification case law in certain jurisdictions this time around, Meyer said the guidance simply restates some of the legal decisions already on the books. He said the renewed focus on the misclassification issue—along with the DOL's proposed changes to overtime pay requirements—means that “2016 is going to be the year of the Fair Labor Standards Act.”

“There's no reason why employers shouldn't start preparing now,” Meyer said.

Stan Saltzman is a partner at Marlin & Saltzman in California, a firm that he said is currently representing groups of truck, transport van and messenger delivery drivers in misclassification cases. He told Bloomberg BNA that the guidance is a “common sense approach” that asks who controls the work and will prevent employers from using misclassification to get around the new overtime rule.

“It is clear that in so many of these cases the purported independent contractors do not control their own destiny, and they are falsely labeled as independent contractors solely to enable the employer to avoid the obligations borne by so many responsible employers,” Saltzman said.

That includes responsibilities like “workers' compensation insurance to protect the workers, unemployment insurance, employer-side payroll taxes and then all the employment benefits such as overtime pay, health insurance, vacation and sick time benefits where they are offered,” he added.

Concerns About Sharing Economy

Michael LeRoy, a professor at the School of Labor and Employment Relations at the University of Illinois, told Bloomberg BNA July 16 that the timing between the overtime rule and the new guidance may be a coincidence.

“There is overlap with the overtime rule, but I honestly think this comes from a different place,” he said. “It’s a concern about the sharing economy and companies like Uber, Lyft and other kinds of enterprises.”

LeRoy said one important detail of Weil’s guidance is the reference to Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376 (3d Cir. 1985). DialAmerica also touted its workers having flexible work schedules similar to companies like Uber, according to the professor.

“Just because there is this flexibility doesn’t mean there is not an employment relationship,” LeRoy said. He added that Weil’s guidance “sets the stage” for more regulatory action on how independent contractors are taxed.

“The public is subsidizing these improper misclassifications with reduction in payments to Social Security and FICA,” he added. “The next is to address who has to pay what share. To take that step you have to first classify people as employees.”

‘Preventive Measure' Urged

Regardless of its intended effect, Bernstein and Meyer said the new guidance gives employers the opportunity to go back and take another look at how they're classifying workers.

“It's always good, as a preventative measure, for clients to periodically review their workforce and review their classifications of workers,” Bernstein said. “This is a good time for clients to take stock of the economic realities of their worker relationships.”

The new guidance doesn't necessarily mean that the review needs to be altered, however.

“I wouldn't change the overall analysis based on the case law,” Bernstein said. “Right now, it's unclear whether a court would give this any deference.”

To contact the reporters on this story: Chris Opfer in Washington at copfer@bna.com; Tyrone Richardson in Washington at trichardson@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com