DOL Withdraws Independent Contractor and Joint Employer Guidance

DOL’s Withdrawal of Independent Contractor and Joint Employer Guidance Signals Shift Under Trump Administration (But Massachusetts Employers Should Not Rest Easy)

On June 7, 2017, the United States Department of Labor withdrew with immediate effect two interpretive guidances issued during the Obama Administration, one dealing with the definition of independent contractor under the Fair Labor Standards Act (“FLSA”) (Administrator’s Interpretation No. 2015-1), and the other dealing with what it means to be a joint employer under the FLSA and the Migrant and Seasonal Agricultural Workers Protection Act (Administrator’s Interpretation No. 2016-1).

Both guidances broadened the protections afforded workers under the FLSA. Interpretation No. 2015-1 reinforced the DOL’s reliance on the “economic realities” test to conclude that most workers should properly be classified as employees rather than independent contractors. Similarly, Interpretation 2016-1 provided that the concept of joint employment “should be defined expansively.”

In its press release announcing the withdrawal, the DOL cautioned that employers’ legal responsibilities under the FLSA have not changed, “as reflected in the Department’s long-standing regulations and case law.” It remains to be seen, though, whether the DOL will continue to focus its attention on these particular issues the way it did under the previous administration. Given the current administration’s eagerness to roll back policies implemented by its predecessor, continued attention seems unlikely.

However, at least with respect to independent contractors, Massachusetts employers should not rejoice just yet. The Massachusetts Independent Contractor Statute (G.L. c. 149, § 148B), first enacted in 1990, remains the law of the land for employers in the Commonwealth. Under this statute (last amended in 2004), a worker is presumed to be a W2 employee unless each prong of the following three-part test is satisfied:

Prong One:  Freedom From Control

The worker must be free from direction and control in connection with the performance of services, both under their contract and in fact. An actual independent contractor performs their services using their own approach, dictating when and how the work will be accomplished, and with minimal direction from the party receiving the services.

Prong Two:  Service Outside the Usual Course of the Employer’s Business

The service the worker performs must be outside the usual course of the employer’s business. For example, a “contract” attorney engaged by a law firm to perform document review is engaged in the usual course of the law firm’s business and, thus, would not satisfy this prong of the test. On the other hand, a plumber hired to repair a leaky faucet in the law firm’s office would satisfy this prong because the law firm is not engaged in the plumbing business.

Prong Three:  Independent Trade, Occupation, Profession, or Business

The worker must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service being performed. If the worker must depend on a single employer for the continuation of the service performed, they will be found to be an employee, not an independent contractor.

The second prong of the three-part test makes it all but impossible for a Massachusetts employer to lawfully engage an individual as a true independent contractor when the services being performed by the individual fall within the usual course of the employer’s business, even when the individual satisfies the first and third prongs of the test.

In many cases, employers engage independent contractors to augment their workforce to meet production or service demands without realizing they are running afoul of the Independent Contractor Statute. Other employers intentionally use independent contractors to get around payroll taxes, workers’ compensation, and other benefits obligations. Regardless of the reason or intent, an employer will be in violation of the Independent Contractor Statute whenever the would-be independent contractors are performing services that fall within the employer’s usual course of business.

An employer found in violation of the Independent Contractor Statute is subject to treble damages and reasonable attorneys’ fees resulting from the misclassification and violation of one or more of the following:

  • The Wage Act
  • The Minimum Wage Law
  • The Overtime Law
  • Laws requiring employers to keep accurate payroll records
  • Tax withholding laws and regulations
  • The Workers Compensation Act

(See Lauren Corbett’s June 28, 2017 post on the Supreme Judicial Court’s recent decision regarding prejudgment interest on damages awarded for Wage Act violations).

More information regarding the Independent Contractor Statute can be found in the Attorney General’s 2008/1 Advisory.

The bottom line with respect to independent contractors in Massachusetts is that, while the U.S. Department of Labor may no longer be as concerned about employers classifying workers as independent contractors rather than employees, the Massachusetts Attorney General’s Office and a host of plaintiff-side employment lawyers certainly are. Massachusetts employers concerned about how they are classifying their workers should consider conducting an audit to determine whether their workers are properly classified under Massachusetts law.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Two Lawsuits Challenge New DOL Overtime Rule

Four months after being formally announced on May 18, 2016, and a little more than two months before it is scheduled to become effective on December 1, 2016, the United States Department of Labor’s (“DOL”) new Overtime Rule has come under a two-pronged attack in federal lawsuits filed in the Eastern District of Texas. A coalition of 21 states and a separate group of more than 50 chambers of commerce and other trade associations filed separate lawsuits on September 20, 2016 seeking to prevent the Obama administration from implementing the Overtime Rule.

As previously noted on this site, the new Overtime Rule increases the annual salary threshold for exempt employees from $23,660 to $47,476. This means that employees who perform duties that otherwise make them exempt from overtime under the “white collar” exemptions set out in the Fair Labor Standards Act, but who earn less than $47,476 per year (or $913 per week), must be paid one-and-a-half times their regular hourly rate for all hours worked beyond 40 in a work week. The new Rule also increases the annual salary threshold for “highly compensated employees” from $100,000 to $134,004. Lastly, it calls for automatically increasing these salary thresholds every three years, beginning on January 1, 2020. The DOL has estimated that under the new Rule, an additional 4.2 million workers in the United States will be eligible to receive overtime – amounting to $1.2 billion in increased wages – in the first year.

Focusing on the anticipated economic harm to businesses of all sizes and to states in their capacity as government employers, both lawsuits seek declarations that the DOL unlawfully exceeded its statutory authority in promulgating the new Rule and injunctive relief to prevent the Rule from going into effect on December 1.

The Eastern District of Texas is known to have a “rocket docket,” processing cases at a rapid pace. However, employers should not sit on their hands in the hope that the judge (who is presiding over both cases), rules in the plaintiffs’ favor before December 1. Unless and until Congress or a court determines that the new Overtime Rule should not become effective in its current form, employers should continue to work toward complying with the new Rule by the December 1 deadline.

Please feel free to contact any of Beck Reed Riden LLP’s employment attorneys with questions regarding this issue.

DOL Issues Revised Overtime Regulations

The moment employers have anxiously anticipated for months is here. This morning (May 18, 2016), President Obama and United States Department of Labor (DOL) Secretary Tom Perez announced the publication of the DOL’s long-awaited revised federal overtime regulations. The DOL has highlighted the following key aspects of the revised regulations:

  1. The standard salary level for the Executive, Administrative, and Professional exemptions will increase from $23,660 to $47,476 per year. While this new level is lower than the originally anticipated $50,440, the increase nonetheless effectively doubles the previous salary threshold and will have a significant impact on employers’ exempt workforces. Indeed, the DOL estimates that the new salary level will make 4.2 million employees newly eligible for overtime pay.
  1. Employers will be able to satisfy up to 10% of the standard salary level through nondiscretionary bonuses and incentive payments including commissions, as long as such payments are made in accordance with the new regulations. Many employers have commissioned workforces and this provision could help them to cushion, albeit minimally, the impact of the increased salary level.
  1. The total annual compensation required for an employee to be considered exempt as a Highly Compensated Employee, will increase from $100,000 to $134,004.
  1. The revised regulations also contain a mechanism by which these salary and compensation levels will automatically update every three years beginning on January 1, 2020.
  1. Although many sources had anticipated that employers would be provided with only a 60 or 90-day compliance period, the effective date is not until December 1, 2016. This effective date provides employers with significantly more time than originally expected to bring their pay practices into compliance.

Given these changes, employers have approximately six months to analyze their exempt workforces and determine how best to comply with the new revisions. Initial guidance for employers from the DOL is available here. This will undoubtedly be a labor-intensive process that will require significant changes for many employers. We at BRR look forward to working with you on these issues in the coming months.

Thanks to my colleagues Nicole Daly and Shannon Lynch for putting this post together!

DOL Proposes Revisions to White-Collar Overtime Exemptions

The U.S. Department of Labor (the “DOL”) has issued a “Notice of Proposed Rulemaking” (“NPRM”) aimed at increasing the number of white-collar employees eligible for minimum wage and overtime pay protections under the Fair Labor Standards Act (the “FLSA”).

The FLSA guarantees a minimum wage and overtime pay at a rate of not less than one and one-half times the employee’s regular rate for hours worked over 40 in a work week unless an employee falls under a statutory exemption. For an employee to be classified under one of the so-called “white-collar exemptions” (executive, administrative, or professional), the employee must meet certain minimum tests related to his or her primary job duties and be paid on a salary basis at not less than a specified minimum amount.

Under the NPRM, the salary threshold for a full-time, salaried employee to be classified as exempt from the overtime laws would be increased from $455 per week (or $23,660 annually) to $970 per week (or $50,440 annually). These proposed figures would set the standard salary level at the 40th percentile of weekly earnings for full-time, salaried employees. Additionally, the DOL proposes to increase the annual salary requirement for the highly compensated employee exemption (which applies to employees who customarily perform one or more of the exempt duties of an executive, administrative, or professional employee) from $100,000 annually to $122,148 annually. The DOL has updated the salary-threshold requirements seven times since 1938, most recently in 2004. The NPRM also creates a mechanism to automatically update the salary-threshold levels annually in the future.

The DOL predicts that, if finalized, the NPRM will extend overtime coverage to an additional five million Americans. The NPRM is subject to a 60-day public comment period. Subsequently, the DOL will issue a Final Rule, which will be reviewed, before publication. While a Final Rule is not expected before 2016, it is not too soon for businesses to start thinking about how to address these likely changes in their policies and practices.

A fact sheet describing the proposed rule may be found on the Department of Labor Website or here. http://www.dol.gov/whd/overtime/NPRM2015/factsheet.htm. A complete copy of the proposed rules is available here. http://www.dol.gov/whd/overtime/NPRM2015/OT-NPRM.pdf

DOL Issues Updated FMLA Forms

The U.S. Department of Labor (the “DOL”) recently issued new forms for use when an employee requests or has need for leave under the Family and Medical Leave Act (the “FMLA”). Employers can access the forms on the DOL website or at the links below.

The most significant change to the FMLA forms is the inclusion of safe-harbor language in the requests for medical information to ensure compliance with the restrictions under the Genetic Information Nondiscrimination Act of 2008. The new safe-harbor language is as follows, “[d]o not provide information about genetic tests, as defined in 29 C.F.R. § 1635.3(f), genetic services, as defined in 29 C.F.R. § 1635.3(e), or the manifestation of disease or disorder in the employee’s family members, 29 C.F.R. § 1635.3(b).”

Employers are not required to use the DOL forms as long as they do not request more information than allowed under the FMLA regulations. However, many employers prefer the convenience of the DOL standard forms, and now those employers will not have the additional burden of adding GINA safe-harbor language to DOL forms and/or cover letters.

DOL Seeks Public Comment on Nursing Mothers Law

The U.S. Department of Labor’s Wage and Hour Division announced this week that it is seeking public comment on its preliminary interpretation of a recent amendment to the Fair Labor Standards Act that requires employers to provide nursing mothers with reasonable break time and a private space to express breast milk during the workday. According to Secretary of Labor Hilda L. Solis, “What the department is seeking to do is develop guidance for employers that will assist them in complying with this new law and that will support women who choose to continue nursing once they return to work. And with input from the public – including working mothers and employers – we’ll be successful in doing that.” Those wishing to submit comments can do so up until February 22, 2011 on the DOL’s website: http://www.regulations.gov.

To learn more about the Break Time for Nursing Mothers Law, check out my previous article on the subject here. For additional resources about the law, visit http://www.dol.gov/whd/nursingmothers.

 

Television Commercial Exposes FLSA Problem

My first post on this blog addressed the legal hazards faced by companies when they make use of unpaid interns. In most cases, interns are actually employees and must be paid in accordance with the Fair Labor Standards Act. If you’d like to read the post again, you can find it here.

I hadn’t thought much about that particular post until last Friday morning. There I was, sipping my coffee watching the Today Show, when a commercial for one of those big-box office supply stores came on the tube. In it, a harried looking small-business woman described how, as a start-up, she could only afford to bring on two unpaid interns to help her run her company. My ears immediately perked up. Didn’t this woman realize she was violating FLSA? Hadn’t her lawyer advised her of the potential exposure she faced for not paying her employees? Shouldn’t she have delayed her launch until she secured another round of VC funding? But it got worse. By saving money at the particular store, the woman was able to grow her business to the point where she needed to bring on even more unpaid interns. By the end of the commercial, the screen was filled with smartly dressed young people working feverishly for the woman, all for no pay! As an employment lawyer, I was shocked. The woman was staring down the barrel of a certain class action.

Now, I’d like to think that the retailer in question complies with FLSA and doesn’t misuse its interns (to the extent it has any). And I’m pretty sure that neither it nor its advertising agency meant to convey the message that not paying your employees is an acceptable business practice. But, unfortunately, many people viewing that particular commercial are likely to come away with exactly that impression. With the Department of Labor cracking down on the (mis)use of interns and independent contractors, employers must be more cautious than ever of complying with wage and hour laws. Employers that are uncertain about whether their interns are actually employees should seek the advice of their employment counsel, post haste.

I’ve only seen the commercial that one time, and I can’t find it anywhere on the internet. I’m beginning to think maybe I was asleep and had one of those work-related dreams people sometimes have. If anyone else has seen the commercial, feel free to add a comment. I’d love to know that I didn’t imagine the whole thing.