The U.S. Department of Labor (DOL) has withdrawn its 2015 and 2016 controversial informal guidance on joint employment and independent contractors. Those two guidance letters, issued during the Obama administration, greatly expanded joint employer liability under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSAWPA), and narrowed the definition of independent contractor under the FLSA and other laws. In short, the sea change worked by these letters has been reversed.

Prior to the 2016 guidance, it had been well-settled that businesses faced potential liability as "joint employers" under the FLSA and MSAWPA only if they exercised "direct control" over the employees at issue. The informal guidance changed this standard to include "indirect control" over an employee, bringing more putative joint employers within the ambit of the laws. The rescission of this guidance signals a return to the DOL's previous position that only "direct control" over an employee will result in joint employer liability.

The Obama administration guidance on misclassification of workers narrowed the definition of an independent contractor, using a six-factor test. Applying that test, the DOL famously instructed, "most workers are employees," not independent contractors, for purposes of withholding employment taxes, paying unemployment insurance, and—critically—eligibility for overtime pay and minimum wage under wage and hour laws. With this guidance withdrawn, the DOL will return to its former, less expansive interpretation of "employee," and courts in FLSA lawsuits may revert to pre-guidance interpretations of the terms "independent contractor" and "employee" as determined by case law in the applicable jurisdiction. What the courts will do is not certain, however, as the plaintiffs' bar can be expected to argue that the withdrawn guidance correctly interpreted the law.

In issuing the withdrawals, the Secretary of Labor made clear that this action does not alter the duty of covered employers to comply with the obligations of the FLSA and the MSAWPA, as reflected in the Department's long-standing regulations and case law. However, while this may signal that under President Trump the DOL will focus its enforcement strategies elsewhere, FLSA class and collective actions and other litigation on these issues likely will continue to be a staple on courts' dockets throughout the nation.

Ballard Spahr's Labor and Employment Group regularly assists clients in all aspects of employer/employee relations, as well as compliance, audits, and litigation under the FLSA and issues related to classification of workers.

Copyright © 2017 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

Related Practices