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Are You My Employer? Breaking News in Worker Misclassification


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Court Finds FLSA "Unhelpfully" Defines Unpaid Intern; Won't Follow DOL Test


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HR & the Law in the News
August 2015, Volume 14, Issue 8
Hello again and welcome to the latest edition of FiveL Company's monthly e-newsletter, bringing you some of the latest news related to employment policies, practices and programs. 

Check out the upcoming events including this month's webcast, "Employee Handbooks: The Saga Continues" pre-approved by HRCI and SHRM for 1.25 credits! Click here for more info. 
Are You My Employer?

It seems every Spring and Summer bring a new rash of lawsuits and legal claims challenging employers' classification of certain workers as something other than an employee.  This year is no different, except
perhaps even more active than others.  First it was the US Department of Labor (DOL); now Congress is getting back into the game.

Independent Contractor Status:  Way back in 2007 I had the honor of testifying on behalf of SHRM during a U.S. Congressional joint subcommittee hearing regarding the challenges employers face when trying to properly classify a worker as an independent contractor instead of an employee. The main barrier is figuring out which definition we are supposed to follow: IRS; DOL; case or common law; federal or state statutory; or federal or state regulatory definitions?!

Fast forward to July 2015 and the issue is still under review.  On July 15th DOL Administrator David Weil issued an Interpretative bulletin or guidance on the matter.  Why now?  In the hopes that additional guidance "may be helpful to the regulated community in classifying workers and ultimately in curtailing misclassification."  Which employers are in the "regulated community"?  Every employer covered under the Fair Labor Standards Act (FLSA).  So let's summarize this 15 page guidance without getting into the legal weeds of comparing and contrasting the "economic realities" with "common law control" or other "tests".  (Wish me luck!) 
Here are some select excerpts from the guidance  that I think convey the primary message:
  1. The scope of the employment relationship under the FLSA is the "broadest definition that has ever been included in any one act."
  2. No one factor is determinative of whether a worker is an employee, particularly not the control factor.
  3. An agreement between an employer and a worker designating or labeling the worker as an independent contractor is not relevant to the analysis of the worker's status.
  4. The goal is not simply to tally which factors are met but to "determine whether the worker is economically dependent on the employer or is really in business for him or herself."
Part II: So economic independence is key.  But how do we define it? By the application of six factors:
  1. Is the Work an Integral Part of the Employer's Business?
  2. Does the Workers' Managerial Skill (business decisions) Affect the Worker's Opportunity for Profit or Loss?
  3. How Does the Worker's Relative Investment Compare to the Employer's Investment?
  4. Does the Work Performed Require Special Skills and Initiative?
  5. Is the Relationship between the Worker and the Employer Permanent or Indefinite?
  6. What is the Nature and Degree of the Employer's Control?
Take Aways?  The Administrator sums it up this way, "In sum, most workers are employees under the FLSA's broad definitions."   

Now you tell me; does the Administrator's guidance meet the intended goal in helping you properly classify a worker? Wait before you answer that -- there's more. 

Don't forget that many states have their own tests and definitions of employee versus independent contractor.  The guidance points to 23 states that have signed a Memorandum of Understanding (MOU) with the DOL and IRS to work together, share payroll, tax and other records to identify worker misclassification.  As many as 30 states may have laws already enacted that address the misclassification of workers as independent contractors with another 14 hosting related legislation or executive action in 2014.  

NEWS FLASH! In the last 24 hours of this writing Congress has re-introduced the Payroll Fraud Prevention Act (yes, back from 2013, 2014). This bill addresses employers' obligations to properly classify workers; provide notice to non-employees of their non-employee status; pay civil money penalties for misclassification; and provides a definition of employee (like we need yet another?!). How's this? "A non-employee means an individual not an employee."  Really?! Here are the sponsor's talking points on the bill and a word from a ranking member supporter.  

The following are just a few of the myriad resources available to help you monitor this issue.
  • DOL Secretary Perez's Blog on Worker Misclassification
  • DOL's map and list of states having signed the MOU
  • DOL Fact Sheet #13: Am I an Employee?
  • IRS Publication 1779: Employee or Independent Contractor?

Are you feeling worn out yet?  Wait! What about unpaid interns? Scroll down for Part II.  You might even get a chuckle out of the next story!

Next Webcast
This month's webcast, 
"Employee Handbooks: The Saga Continues
August 26, 2015 10:00 - 11:15 a.m. EST
(see the July newsletter article "NLRB Speaks on Employer Rules" for a sneak peek)
Pre-approved by HRCI and SHRM for 1.25 credits.

Click here for a program description or to register.


$49 per person. Live and archived webcasts are pre-approved by HRCI and SHRM for 1.25 credits. 
Discounted group rates available. Click here for more information. 

Upcoming Events: Click here for a full listing of public and private speaking engagements, seminars and conferences.

Upcoming Public Speaking Events
Wednesday, August 5th - "HR's Strategic Response to Newly Published DOL Overtime Exemption Rules: Help Shape Final Rules" a webcast hosted by BLR 1:30 - 3:00 EST.  Pending HRCI pre-approval for business credit.

Wednesday, August 12th - "Tools for HR Compliance" a webcast hosted by NAMIC 2:00 - 3:00 EST. HRCI pre-approved for credit. 

Wednesday, August 26th - FiveL's webcast, "Employee Handbooks: The Saga Continues" - see listing above or click here.

Tuesday, September 1st, "HR Metrics" a webcast hosted by NAMIC 2:00 - 3:00 EST HRCI pre-approved for credit.
Click here for a full listing of upcoming events.
Are You My Employer? Part II - Unpaid Interns
I promise, this article will be shorter with a chuckle nearly guaranteed and a smile even more so.

The 2nd Circuit Court of Appeals (covering NY, VT & CT) recently decided for the first time in its history, "under what circumstances an unpaid intern must be deemed an 'employee' under the FLSA and therefore compensated for his work." First it looked to the law itself and found, "The FLSA unhelpfully defines 'employee' as an 'individual employed by an employer.'" 

Next it considered the position of the US Department of Labor (DOL), which had chimed in and reminded the court of its six-factor test. (Fact Sheet #71) The test, which has been in place since 1967, requires that all six factors must be met in order for a worker to be properly classified as an unpaid intern.  The DOL urged the court to give its views on employee status deference because it is the agency charged with administering the FLSA. 

The court responded, "We decline DOL's invitation to defer to the agency has no special competence or role in interpreting a judicial decision...the test is too rigid...we do not find it persuasive, and we will not defer to it." (Oh, excuse me - was I smiling? It's like kids in a sandbox, no?) 


Instead the court derived its own 7-factor test for which "every factor need not point in the same direction to conclude that the intern is not an employee...our approach better reflects the role of internships in today's economy than the DOL factors, which were derived from a 68-year old Supreme Court decision..."

The case was remanded to the district court for reconsideration.  Stay tuned!  

This newsletter does not constitute the rendering of legal advice.  You should consult your company's legal counsel for guidance on employment matters. 


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