When Is an Independent Contractor not an Independent Contractor?

On July 15, the U.S. Department of Labor Wage and Hour Division issued new guidance interpreting the classification of workers as independent contractors or employees under the federal Fair Labor Standards Act (FLSA). This guidance follows on the tails of a California Labor Commissioner’s ruling last month that an Uber driver was an employee of the company, not an independent contractor.

This guidance aims to facilitate determining whether “a worker is economically dependent on the employer, and thus an employee.” Regulators will use a number of factors to assess whether a worker’s relationship with a business is that of an independent contractor or an employee. These factors include, but are not limited to, whether the work being performed is “integral” to the business; whether the worker’s managerial skill impacts the worker’s ability to profit or experience a loss; the relative investment of the worker and the employer; whether the work requires special skills or initiative; the permanent nature of the relationship; and the degree of control the business exerts over the worker.

The bottom line here is that the guidance is intended to lead to the conclusion that “most workers are employees under the FLSA’s broad definitions.” Classifying a worker as an independent contractor does not end the inquiry as to whether a worker is indeed an independent contractor or an employee. Instead, an analysis is needed of the worker’s relationship with the business, and in particular, whether the worker is economically dependent on the employer.

In addition to federal labor regulations, Washington state employers should be aware of applicable state regulations as well. Business owners working with independent contractors should consult legal counsel to assess whether these individuals are instead likely to be classified as employees under this new guidance. And, if the worker is truly an independent contractor, a good agreement should be drafted to document the terms of the relationship. Need assistance? Please contact us, we’d be happy to help!

Photo credit: Official GDC on Flickr