DOL Issues Guidance On Independent Contractor

Classification; DOJ Shifts Position on Web

Access
By: Lawrence P. Postol, Vice President For Legislative Affairs
Lpostol@seyfarth.com
DOL Issues Guidance On Independent Contractor Classification Interpreting FLSA Broadly to
Cover Most Workers as Employees
On July 8, 2015, the U.S. Department of Labors Wage and Hour Division (WHD) issued
its first Administrators Interpretation (AI) on the Fair Labor Standards Act in more than a year.
As the Administrator, Dr. David Weil, had forecast in a speech last month, todays AI discusses
the important topic of independent contractor and employee classification under the FLSA. The
AI is an unapologetic effort to restrict the use of independent contractors: [M]ost workers, the
Administrator concludes, are employees under the FLSAs broad definitions.
As background, an AI is an agency interpretation, and is not subject to the notice and
comment process required for rulemaking, such as the Department of Labors proposal to amend
the white collar exemption regulations published last week. (See guidance on Retail,
Hospitality, Financial Services, and Healthcare.) The extent to which courts should defer to the
AI, if at all, is likely to be the subject of debate and litigation. It is clear, however, that the AI
does not have the force of a regulation properly issued after notice and comment. The AI does
not announce a new test for employee, as opposed to independent contractor, status. Rather, it
grafts the multi-factor economic realities test that courts commonly use onto an extremely
expansive reading of the FLSAs suffer or permit to work definition of employ. In so doing,
the Administrators analysis and examples further WHDs recent efforts to investigate the use of
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independent contractors. Combined, WHDs efforts indicate a significant hostility towards the
use of independent contractors.
The result that the Administrator seeks is to severely restrict the use of independent
contractors and to require businesses to reclassify those workers as employees subject to the
minimum wage and overtime requirements of the FLSA as well as to other federal and state laws
applicable to the employment relationship. The Administrator also notes that the same analysis
of independent contractor v. employee status under the FLSA applies to the FMLA and the
Migrant and Seasonal Agricultural Worker Protection Act.
The Administrators Interpretation relies on the economic realities test to assess
whether an entity suffers or permits to work individuals who are entitled to the FLSAs
statutory protections. At the highest level, the AI states this test as whether the worker is really
in business for him or herself (and thus is an independent contractor) or is economically
dependent [on the business for which he or she provides services] (and thus is its employee).
In the AI, WHD continues its use of six factors typically included in an analysis of the
economic realities test, and restates its belief that no one factor is controlling or should be
given undue weight. And, additional factors relevant to any particular situation may also be
considered. The key is to determine whether workers have sufficient economic independence by
operating a business of their own. These six factors include:
1. The extent to which the work performed is integral to the employers business;
2. Whether the workers managerial skills affect his/her opportunity for profit and loss;
3. The relative investments in facilities/equipment by worker and the employer;
4. The workers skill and initiative;
5. The permanency of the workers relationship with the employer; and

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6. The nature and degree of control exercised by the employer.

Starting from the premise that most workers are employees under the FLSAs broad
definition, WHD rejects the parties understanding of their relationship, as well as whether they
have an agreement regarding the nature of their relationship. As the AI states: [A]n agreement
between an employer and a worker designating or labeling the worker as an independent
contractor is not indicative of the economic realities of the working relationship and is not
relevant to the analysis of the workers status. (emphasis supplied).
Instead, AI reviews and considers each of these factors -- emphasizing the extent to
which the services at issue are integrated into the business of the entity receiving them and
deemphasizing whether the business has control over the service provider. Rather than simply
restating the factors, however, WHD cherry-picks court decisions to support its position,
ultimately concluding that the most important question is whether an individual runs a truly
independent business.
Here are the key points made by WHD regarding each factor of the test:
Integral To Business:
Although the AI notes that no one factor is controlling, this factor is described as
compelling, and appears to have a heightened importance in the analysis.
Work can be found to be integral to a business even if the work is just one component
of the business and is performed by hundreds or thousands of other workers.
How this factor applies will be especially important to the growing on-demand
business model, which often involves an attempt to redefine the structure of an industry so that
services that were once performed by employees are performed by independent service
providers.

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Potential For Profit/Loss:

The guidance explicitly rejects the theory that a workers ability to work fewer or more
hours at their own discretion equates to an opportunity for profit or loss.
An independent contractors opportunity for loss appears to now be a requirement under
the test: it is important not to overlook whether there is an opportunity for loss, as a worker
truly in business for him or herself faces the possibility of a loss.
Relative Investments:
The relative investments between the worker and a business matter under the AI,
and the workers investment must be significant in nature and magnitude relevant to the
employers investmentto indicate that the worker is an independent businessperson.
This adds a quantitative analysis to the equation, but fails to provide an acceptable ratio only that a workers investment should not be relatively minor; WHD then proceeds to dismiss
the investment of $35,000 to $40,000 by a worker as, essentially, an inconsequential amount.
Skill/Initiative Requirement:
The DOLs guidance emphasizes a workers business skill, judgment, and initiative
and not his or her technical skills under this factor.
This language seems to explicitly dismiss any consideration of a workers technical
ability and would focus the analysis solely on the workers business acumen.
Permanency Of Relationship:
The AI states that the key is whether the lack of permanenceis due to the operational
characteristics intrinsic to the industry.
As an example, staffing agency workers were viewed as employees given the nature of
the industry and the permanency in the working relationship.

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Degree Of Control:
The AI specifically de-emphasizes the importance of this factor and says it should not
play an oversized role in the analysis.
A companys exercise of control due to the nature of their business, regulatory
requirements, or their desire to maintain high customer satisfaction are not permissible reasons to
exert control over independent contractors and still indicate an employee relationship.
The fact that workers control the hours they work is largely insignificant where such
freedom is typical in the workers specific industry.
Taken collectively, these views -- supported by cases cited by WHD, but dismissing
virtually all contrary authority -- represent an effort to expand dramatically the economic
realities test. Coupled with WHDs proposed massive increase to the salary level required for
the white collar exemptions -- published less than 10 days ago -- WHDs actions have the
potential to fundamentally alter countless business models, without Congressional activity,
without proposed language (in the case of the duties tests for the exemptions), and, in this case,
without any opportunity for the regulated community to provide its comments on WHDs
position.
Any business that uses independent contractors extensively or to receive services that are
important to its success should review this AI and consider carefully how the WHD and courts
applying the economic realities test would view its independent contractor relationships. A
business that misclassifies an individual as an independent contractor may face significant
exposure under the FLSA, including liability for any failure to pay at least the minimum wage
for all time worked, failure to pay overtime for work in excess of 40 hours per week, violations
of the Family and Medical Leave Act and other statutes that borrow the FLSAs definition of

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employee, and violation of the FLSAs recordkeeping requirements.

Failing the FLSA

economic realities test may also indicate possible misclassification under other federal and state
statutes, which may carry even greater exposure, including liability for failure to: reimburse
employee expenses, provide various employee benefits, withhold income taxes and FICA, pay
unemployment insurance contributions and provide workers compensation insurance coverage.
Lawsuits challenging workers classifications under the FLSA have become common;
plaintiffs lawyers have challenged both individual classification decisions and new and old
industry models involving independent contractors. The broad guidance issued by WHD today
will likely be used by the plaintiffs bar to try to chip away at independent contractor
classifications. Businesses and management-side practitioners should take inventory of those
decisions that have a more reasoned and neutral application of the economic realities test and
be prepared to use those cases -- and not those cited in the AI -- as a more appropriate view of
the standard.
In addition, WHD has aggressively sought to enforce independent contractor standards
through investigations and audits, which may ultimately give rise to lawsuits filed by the DOL.
Indeed, WHD has requested budget increases for more than 300 new full-time enforcement
positions, and has provided millions of dollars for worker misclassification detection and
enforcement initiatives. On top of that, of course, are the back wages WHD has recovered for
newly-determined employees. And as weve previously reported, the spike in on demand
services available via smart phones has created a wave of independent contractor
misclassification lawsuits that has greatly increased the visibility of this issue.

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Taking the long view, Dr. Weils guidance is also in keeping with the WHDs apparent
goal of affecting widespread change in the manner in which U.S. businesses designate workers
as independent contractors. Indeed, Dr. Weil has previously written that, we need to create
ripple effects that impact compliance far beyond workplaces where we physically conduct
investigations, or organizations to which we provide outreach directly. We need to continue to
find ways to make our investigations of one employer resonate throughout that particular sector
and influence the behaviors of employers across the entire industry
Ultimately, the AI is consistent with the DOLs stated intent to aggressively challenge
independent contractor classifications.

The guidance now makes it likely that DOL

investigations and enforcement actions and private litigation contesting the classification of such
workers will intensify. Businesses should, therefore, carefully evaluate the DOLs guidance and
its potential impact on their operations.
DOJ Shifts Position on Web Access: Stating In Court Filings That Public Accommodations Have
a Pre-Existing Obligation to Make Websites Accessible
What a difference five years makes. In September 2010, the Justice Department (DOJ)
announced in an Advanced Notice of Proposed Rulemaking (ANPRM) that it would issue new
regulations under Title III of the ADA to address the accessibility of public accommodations
websites. At that time, it made a number of statements that reasonably led public
accommodations to conclude that their websites did not necessarily have to be accessible as long
as the public accommodation offered an equivalent alternative way to access the goods and
services that were provided on the website. The DOJs statements also led public
accommodations to believe that once DOJ issues a final regulation, they would have time to

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make their websites comply with the technical accessibility standard DOJ adopts in that
regulation.
DOJ has now shifted positions, presenting its revised viewpoint in Statements of Interest
it filed in two lawsuits originally brought by the National Association of the Deaf (NAD) against
two universities about the alleged inaccessibility of videos on their websites.
What DOJ said in 2010.
In the 2010 ANPRM, DOJ stated that covered entities with inaccessible websites may
comply with the ADAs requirement for access by providing an accessible alternative, such as a
staffed telephone line, for individuals to access the information, goods, and services of their
website. In order for an entity to meet its legal obligation under the ADA, an entitys alternative
must provide an equal degree of access in terms of hours of operations and range of information,
options, and services available. For example, a department store that has an inaccessible website
that allows customers to access their credit accounts 24 hours a day, 7 days a week in order to
review their statements and make payments would need to provide access to the same
information and provide the same payment options in its accessible alternative.
DOJ also asked the public to comment on the following questions: (1) Are the proposed
effective dates for the regulations reasonable or should the Department adopt shorter or longer
periods for compliance? (2) Should the Department adopt a safe harbor for such [web] content
so long as it is not updated or modified? (3) Should the Departments regulation initially apply
to entities of a certain size (e.g., entities with 15 or more employees or earning a certain amount
of revenue) or certain categories of entities (e.g., retail websites)? Particularly relevant to the
NAD lawsuits, DOJ specifically asked the public to comment on whether requiring videos on
websites to have captioning would reduce the number of videos that public accommodations

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would make available, to the detriment of the public. ([W]ould the costs of a requirement to
provide captioning to videos cause covered entities to provide fewer videos on their websites?).
What the DOJ is saying now.
On June 25, 2015, the DOJ filed Statements of Interest in two lawsuits brought by the
NAD against two major private universities. The NAD brought suit against these two universities
under Title III of the ADA and Section 504 of the Rehabilitation Act alleging that they had failed
to caption the many thousands of videos that are posted to their various websites. To be clear, at
issue are not videos that students enrolled in paid or free courses may be required to view.
Instead, at issue are videos of general interest (e.g., a lecture posted by a professor, a speech
given at the university, or even a campus organizations event).
Both schools asked the federal court to stay their respective cases until the DOJ issues
final regulations specifying what the law requires of public accommodations websites or to
dismiss the cases in their entirety on other grounds. Though not a party to either case, the DOJ
filed a brief in both in support of the NAD. Although there is much to digest in the DOJs briefs,
here are some highlights:
[T]he scope and timing of any final rule on web accessibility is speculative and far
from imminent; although the title III proposed rule. . . is currently scheduled for a Spring 2016
publication, there is no scheduled date for publication of a final rule. In other words, it could be
years before we see any final regulations on website accessibility. Meanwhile, DOJ continues to
pressure businesses into making their websites accessible by filing these types of briefs and
threatening enforcement actions, as we have reported.
The obligation to make websites accessible exists right now, even in the absence of any
new regulations. DOJ made this point indirectly by stating that when it issued the ANPRM in

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2010, it was seeking to explore whether rulemaking would be helpful in providing guidance as
to how covered entities could meet their pre-existing obligations to make their websites
accessible. This position departs significantly from DOJs statement in the 2010 ANPRM that
public accommodations with inaccessible websites can still comply with the ADA by providing
an equal degree of access through alternative means (e.g. the telephone).
Every video that is on a public accommodations website has to be accessible to people
with disabilities, even if it is not closely related to the public accommodations core business.
DOJ said the universities have an obligation to make their online programming accessible.
DOJ defined online programming to include free online videos and audio files that are not only
courses or educational lectures but also topics of general interest. DOJ did say that the
universities could try to prove that providing accessible videos is an undue burden or would
fundamentally alter the nature of the goods and services they provide, but this would be a factintensive issue which would have to be resolved much later in the case.
A public accommodation has an obligation to ensure that the content of its videos is
accessible to every person with a disability in the public at large, not just individuals who are
customers or potential customers. For the universities, this means that the obligation goes
beyond providing access for people who have some connection to them (e.g., students, potential
students, etc.).
We should point out that DOJ did not specifically state that access to online videos must
be provided through closed captioning. Thus, it is at least conceivable that the videos could be
made accessible in some other manner.

However, as a practical matter, there are few other

options for providing the deaf and hard of hearing access to audio content that is on a video and
the NAD is demanding captioning in the lawsuits. In addition, DOJ did not say whether it

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expected all videos to be captioned before they are posted, or whether captioning (or some other
means of access) can be provided after a deaf person makes a request.
The Far Reaching Implications.
Although DOJ articulated the above positions in the context of website videos, the
principles underlying DOJs positions can be applied to everything on a websitenot just
videos. DOJs statements confirm what we always knew based on our ongoing work with the
agency on website-related matters: DOJ expects public accommodations to make their websites
accessible, even in the absence of even a proposed regulation that would provide public
accommodations guidance, through the proper regulatory process, as to what the DOJ considers
a legally-compliant accessible website.

2015 by Lawrence Postol

Mr. Postol is the Vice President for Legislative Affairs on the NOVA SHRM
Board, and a partner in the Washington, D.C. office of Seyfarth Shaw LLP. If you
have any questions about the information in this article, you may e-mail Mr. Postol
at Lpostol@seyfarth.com or call him at 202-828-5385.
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