June 8, 2017

Department of Labor Withdraws Obama-era Guidance on Independent Contractors and Joint Employers, Signaling Significant Shift in Wage and Hour Policy

4 min

On Wednesday, the U.S. Department of Labor withdrew two Wage and Hour Division administrative interpretations on independent contractors and joint employment, thereby signaling a significant shift in wage and hour policy. The withdrawn Obama-era guidance had increased scrutiny on employers to correctly classify workers as employees and adopted expansive standards for determining joint employment. While the withdrawal of the guidance has little bearing on existing law, it is a strong indication that the administration will attempt to reverse Obama-era policy in favor of less aggressive regulation.

The Administrative Interpretations

In 2015, the Wage and Hour Division (WHD) issued Administrative Interpretation No. 2015-01. Authored by WHD Administrator David Weil, the guidance stated that most workers are employees – rather than independent contractors – under the Fair Labor Standards Act (FLSA) definition of "employment." The guidance effectively created a presumption that workers are employees under the FLSA, underscoring the importance and level of scrutiny placed on employers to correctly classify workers.

The next year, the WHD published Administrative Interpretation No. 2016-01, addressing joint employment under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The guidance, also authored by Administrator Weil, offered new standards for determining when companies are joint employers under the FLSA and MSPA. Administrator Weil called for an expansive definition of joint employment – suggesting, for instance, that employers who share clients or customers may be joint employers, and that a company may be a joint employer with a contractor if the contractor's employee performs repetitive work.

Immediate Impact

Withdrawing the guidance has little, if any, impact on existing law. Indeed, the DOL emphasized in its announcement that the removal "does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Protection Act, as reflected in the department's long-standing regulations and case law."

The withdrawal of the WHD administrative interpretations does not directly affect the risks associated with misclassifying workers. The misclassification of workers still exposes employers to significant liability risks, including back wages, overtime, social security and Medicare taxes, workers' compensation, and unemployment insurance, among others. Employers should continue to ensure that workers are properly classified as employees or independent contractors under the appropriate standards, particularly the FLSA and IRS tests.

Similarly, an organization may still be liable as a joint employer under the FLSA or MPSA. With or without the WHD administrative interpretation, joint employer determinations are unpredictable because the law is not clear. The National Labor Relations Board's major Browning-Ferris decision is still pending appeal at the D.C. Circuit. In Browning-Ferris, the Board found that a company can be liable for its contractor as a joint employer even if the company exerts no control over the contractor's workers. Despite the withdrawal of the WHD guidance, employers that have such relationships with contractors should continue to analyze their status under the relevant standards and ensure compliance with the DOL-enforced laws.

Signal for the Future

The withdrawal of the administrative interpretations is significant because the Trump administration is sending a message about its intention to take a less aggressive approach to the enforcement of this aspect of the wage and hour laws than the Obama administration. The withdrawal is likely the first step taken by the administration to move away from Obama-era wage and hour policy and eventually enact pro-business regulations.

Despite the symbolic significance of withdrawing the administrative interpretations, it is unlikely that there will be substantive change to wage and hour regulations and law in the near future. In his confirmation hearing, Secretary of Labor Alexander Acosta expressed his intent to direct agencies to issue opinion letters as regulatory guidance instead of administrative interpretations; however, the process of issuing opinion letters – or any new guidance – will probably remain at a standstill until President Trump appoints an administrator of the Wage and Hour Division.