June 8, 2017

The U.S. Department of Labor Withdraws Obama-Era Guidance Regarding Independent Contractor versus Employee Classification

As we previously blogged here and here, the Obama Administration, through the U.S. Department of Labor (“DOL”) as well as the National Labor Relations Board (“NLRB”), made it clear early and often that it was going to take an active role in reshaping the landscape of employment and independent contractor relationships. Notably, in the Browning-Ferris ruling, the NLRB significantly expanded the doctrine of joint employers and ruled that franchisors may well be joint employers of a franchisee’s employees. The DOL issued new guidance regarding the determination of whether workers are employees or independent contractors (concluding that most workers currently classified as independent contractors are indeed employees under the “economic realities” of the relationship between the worker and the entity he/she works for). The DOL also issued new regulations that significantly raised the minimum salary floor necessary to be considered exempt, and thereby raised the very real possibility (or inevitable conclusion) that many employees considered to be exempt from overtime pay under the Fair Labor Standards Act (“FLSA”) would now be non-exempt, hourly employees eligible for overtime pay.

That was then, and this is now. As we previously blogged here, the overtime rules were enjoined by a United States District Court in Texas back in November 2016, and effectively left to die on the vine by the incoming administration. Today, in a short press release, the DOL has announced that it is withdrawing its Obama-era guidance on independent contractors. The press release also noted that “[r]emoval of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act… [t]he department will continue to fully and fairly enforce all laws within its jurisdiction…”

So what does this mean? Although the impact of this withdrawal of prior guidance will be muted in states like California with very active state labor departments/commissioners and aggressive plaintiffs’ bars where the state’s standards are equal to or greater than those created by the FLSA, it is still big news, at least symbolically. Although not surprising, this move is a follow-through by the Trump Administration that it would reverse what it views as onerous executive guidance and regulations in favor of a more business-friendly tone. And it is probably fair to say that the Trump Administration will move, either by some form of executive action, or through a Congressional bill, to limit or eliminate the “joint employer” test enunciated by the NLRB in Browning-Ferris, even if some or all of the NLRB’s joint employer test is upheld on appeal (oral argument in this matter was held before the U.S. Court of Appeals, District of Columbia, on March 9, 2017, so an appellate decision could be forthcoming soon).

Takeaways

For California employers, today’s press release is a continued signal of a change of tone at the federal level, but really should not change the day to day business of complying with the generally higher bar set by California wage and hour laws. Moreover, it bears repeating, as we have stated in prior blog posts, that nowhere in the FLSA is the term “employee” defined in any helpful or meaningful way—and California law is similarly unhelpful in this regard. So the various California and federal tests for independent contractor-versus-employee status, which, though varied, generally look to the totality of the circumstances at hand (including notably the degree of control exercised over the worker’s tasks), are still squarely in the mix. For this reason, employers would be well advised to work with counsel to carefully review their independent contractor/employee classifications to fully assess any exposure risk.