Misclassification of employees as independent contractors under FSLA

A headline in the Christian Science Monitor caught my eye the other day: "Are you an independent contractor? Probably not, Labor Department says."

The article goes on to discuss a new Department of Labor ruling concerning the misclassification of employees as independent contractors.

The new ruling, Administrator's Interpretation No. 2015-1, dated July 15, 2015, states in its introduction that:

Misclassification of employees as independent contractors is found in an increasing number of workplaces in the United States, in part reflecting larger restructuring of business organizations.  When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation.  Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.  Although independent contracting relationships can be advantageous for workers and businesses, some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.

This rings true, as I have seen a number of workers compensation cases in which regular employees certainly seem misclassified as 1099 independent contractors.  Usually this involves construction subcontractors who hire mostly undocumented workers.  This particular administrative interpretation, however, deals directly with the definition of who is an employee under the Fair Labor Standards Act, not with workers' compensation law.  The courts have developed a multi-factor test to determine whether a worker is an employee or an independent contractor under the FSLA.

The factors typically include: (A) the extent to which the work
performed is an integral part of the employer’s business; (B) the worker’s opportunity for profit or loss depending on his or her managerial skill; (C) the extent of the relative investments of the employer and the worker; (D) whether the work performed requires special skills and initiative; (E) the permanency of the relationship; and (F) the degree of control exercised or retained by the employer.

In a footnote, the Department of Labor references its "Misclassification Initiative and related memoranda of understanding", which essentially involves sharing of information between federal and state agencies. Details are available here.