DOL Withdraws Independent Contractor and Joint Employer Guidance

The DOL’s withdrawal of two Administrator’s Interpretations likely is a harbinger of further changes to administrative agency enforcement posture under the new administration.

The first few days of June saw movement by the US Department of Labor (DOL) in the direction of the more business-friendly approach anticipated with the arrival of President Donald Trump’s administration: On Friday, June 2, the DOL notified the US Court of Appeals for the Fifth Circuit that it is in the process of rescinding the currently enjoined “persuader regulations” under the Labor Management Reporting and Disclosure Act.[1] Days later, on June 7, the DOL announced the withdrawal of two DOL “Administrator’s Interpretations” (AIs) issued under the administration of former President Barack Obama. Finally, on the same day, DOL Secretary Alexander Acosta defended proposed DOL budget cuts to US Congress. 

The rescinded AIs—a 2015 AI addressing the tests for employee/independent contractor classification and a 2016 AI addressing joint employment liability[2]—deliberately pushed the envelope in favor of expanding liability under the Fair Labor Standards Act (FLSA). The DOL’s independent contractor AI, for example, concluded that “most workers are employees” and advocated for a revised “economic realities test” for employee/contractor status that tipped the scales decidedly in favor of employee status. Later in 2016, the DOL similarly articulated a broad view of joint employer coverage—even in situations where little or no traditional indicia of control exists between two entities.

Both AIs were withdrawn, effective immediately upon the DOL’s June 7 announcement. Although the AIs reflected a departure from the standards that courts traditionally have used in many jurisdictions, the AIs did not have the binding effect of a DOL regulation. Accordingly, the long-term impact of the previously issued AIs depends on whether particular courts found their reasoning persuasive.[3]

In the weeks and months to come, we expect to see further policy changes under the current administration across multiple administrative agencies, and employers should continue to monitor developments. Among other developments, we anticipate that we may see the following:

• New Overtime Regulations. Secretary Acosta told Congress that the DOL would be requesting public comment on the new overtime regulations that significantly increase the required salary level for white collar exemptions, which have been enjoined since November.[4]
• A Return to DOL Opinion Letters. The DOL is widely anticipated to resume issuing DOL opinion letters that address individual questions from specific employers and provide a “good faith” defense in certain circumstances. Secretary Acosta stated at confirmation hearings, for example, that he saw “no reason” to discourage opinion letters. This would mark a different approach than issuing AIs, which were widely criticized as an attempt to make broad policy changes while circumventing the notice/comment process required for regulations.
• Changes to the National Labor Relations Board. Within the next six months, we anticipate that the administration will fill the two current vacancies on the National Labor Relations Board (NLRB). In addition, Democratic General Counsel Richard Griffin will complete his term in early November 2017. A Republican-dominated NLRB is likely to scale back on some of the Obama-era views on significant issues such as the NLRB’s broad new test for joint employment.[5]

Takeaways

Despite the withdrawal of the AIs, employers must remain vigilant in identifying and evaluating their independent contractor, staffing agency, and other vendor relationships for potential contractor misclassification risk or joint employment liability. Audits of those relationships followed by revisions to contractor and agency agreements, along with changes in the level of on-the-ground control over nonemployee workers, can materially reduce risk for employers.

Even if the DOL is returning to a more business-friendly analysis of these issues and scaling back enforcement, the plaintiffs’ bar remains active in prosecuting class and collective actions premised on contractor misclassification and joint employment theories. We are seeing weekly (if not daily) filings on these issues—particularly in the financial services, energy, and food industries. Our team is available to assist in limiting the risks of these claims.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Chicago
Sari M. Alamuddin

Dallas
Ronald E. Manthey

Houston
Stefanie Moll

Los Angeles
John S. Battenfeld

Miami
Annie Estevez

New York
Christopher A. Parlo
Melissa C. Rodriguez

Orange County
Daryl S. Landy
Barbara J. Miller

Philadelphia
Paul C. Evans
Michael J. Puma

Princeton
Thomas A. Linthorst
Sean P. Lynch

San Francisco
Eric Meckley

Washington, DC
Russell Bruch