Legal Opinion
22
Texas Association of Builders
NAHB Analysis of Employee
Misclassification Guidance
on Independent Contractors
I
n an effort to combat misclassification
of
employees
as
independent
contractors, on July 15, 2015, U.S.
Department of Labor (DOL) Wage and
Hour Division Administrator David Weil,
issued an administrator’s interpretation
that purports to provide guidance
regarding application of the standards for
who is an employee under the Fair labor
Standards Act (FLSA or the “Act”).
Below is a summary of the guidance
document. Notably, the document does not
appear to signal a shift or change in the law
as it relates to how workers are classified
as either employees or independent
contractors. Rather, the document clarifies
the factors to be considered in making
such a determination.
On its face, this interpretation does not
appear to place any new or additional
burdens on the industry; however,
given the emphasis on the construction
industry to date, and in the guidance
document, NAHB will have to be vigilant
in monitoring enforcement to determine
how DOL is applying the “economic
realities” test in the field.
Arguably, the factors leave a lot of room for
interpretation, and, as noted, there is clearly
a bias towards worker status as employees.
The
administrator’s
interpretation
concludes that most workers are
employees under the FLSA’s broad
definition of employ, which means “to
suffer or permit to work.” In order to make
that determination, the courts use a six
factor economic realities test.
Ultimately, the goal of the economic
realities test is to determine whether a
worker is economically dependent on the
employer (and is therefore an employee) or
is really in business for himor herself (and is
therefore an independent contractor). The
application of the economic realities factors
is guided by the overarching principle that
the FLSA should be liberally construed to
provide broad coverage for workers.
The factors considered under the
economic realities test include:
• Is the work an integral part of the
employer’s business?
• Does the worker’s managerial skill affect the
worker’s opportunity for profits or loss?
• How does the worker’s relative investment
compare to the employer’s investment?
• Does the work performed require special
skill and initiative?
• Is the relationship between the worker and
the employer permanent or indefinite?
• What is the nature and degree of the
employer’s control?
The guidance emphasizes that “All of
the factors must be considered in each
case, and no one factor (particularly
the control factor) is determinative of
whether a worker is an employee.” Instead,
the factors should be used as guides to
answer the ultimate question of economic
dependence or independence.
By National Association of Home Builders
