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.

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