Misclassification of workers has become a major focus for the Department of Labor. To assist employees in understanding the difference between an independent contractor and employee, the Department of Labor issued an Administrator’s Interpretation (“AI”). The AI analyzes how the Fair Labor Standards Act’s definition of “employ” guides the determination of whether a worker is an employee or independent contractor under the Fair Labor and Standards Act. The AI also provides guidance regarding the “economics realities” test used by the Courts when making such determinations.
The “economics realities” test is a multi-fact test which typically include the following factors:
- extent to which the work performed is an integral part of the employer’s business;
- worker’s opportunity for profit or loss depending on his or her managerial skills;
- extent of the relative investments of the employer and the worker;
- whether the work performed requires special skills and initiative;
- permanency of the relationship; and
- degree of control exercised or retained by the employer.
- Other factors may also be considered. However, no one factor determines all.
In April an Arizona employer was ordered to pay $600,000 in back wages, liquidated damages and civil money penalties for misclassifying workers as independent contractors. It is strongly recommended that employers seek legal counsel before classifying workers as independent contractors.
Laura M. Trujillo