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New guidance about independent contractor vs. employee classification called Cysubjective'.

Byline: Ed Silverstein

General counsel need to pay special attention to the recently released guidance from the U.S. Department of Labor (DOL) on whether a worker is an employee or an independent contractor.

Many companies have found themselves sued because of a misclassification and there is some reason to believe such suits and even actions by the DOL will intensify with the new guidance.

"The DOL is going to become increasingly involved in an issue that historically was one the states led the charge on," Allan Bloom, an attorney at Proskauer Rose, told InsideCounsel.


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In addition, he points out the Labor Department "will focus much less on the degree of control the company exercises over the worker -- which traditionally was the factor most businesses focused on -- and much more on the economic reality of whether the worker is financially dependent on the company for his or her livelihood."

Based on his reading of a recent DOL statement, (Administrator's Interpretation [AI] No. 2015-1), Bloom highlighted the "degree to which the agency is downplaying the Cycontrol test' and underscoring the Cyfinancial dependence' test."

In the AI, the Labor Department still uses six factors found in an economic realities test to determine if someone is an independent contractor or employee.

But especially given the new guidance, Matthew Disbrow, an attorney with Honigman Miller Schwartz and Cohn, advises general counsel they "should re-examine the status of every independent contractor."

"Although the test articulated in the AI is not necessarily new, the subjective nature of the DOL's interpretation and its narrow focus on Cyeconomic dependence,' creates substantial challenges for companies who wish to maintain their independent-contractor relationships," Disbrow explained to InsideCounsel. "Furthermore, although the elements of the Cyeconomic realities' test may appear understandable at first blush, a careful reading of the DOL's guidance reveals that there are no bright-line rules upon which to rely. The same person could be considered an independent contractor or an employee simply based on the business at issue."

Disbrow gives an example. A carpenter may be an independent contractor when working for a software company, but would be an employee if the same work is performed for a general contractor.

It is also important, Disbrow points out, that no factor is "determinative." The administrator's interpretation rejects any "mechanical" application of the test, he adds. That means inside counsel or other executives will not always know what factor the DOL or a court might find most important.

"Such Cyfuzzy,' multi-factored tests usually create more problems than they solve," Disbrow said.

"Unfortunately, there are almost no clear-cut definitions in the AI," he added. "With regard to independent contractor misclassifications, the DOL apparently knows it when, it sees it. But this provides little comfort to most businesses."

Disbrow highlighted some takeaways for inside counsel, such as:

* The DOL suggests most work should be performed by employees. Independent contractors should be used sparingly.

* There is some risk in engaging the services of any independent contractor, other than those of a small business, on an occasional basis, that are not significantly related to the core business. One example of when it appears to be okay is an accounting firm hiring a plumber to fix a leaky pipe.

* Entering into an independent contractor agreement or hiring a business entity rather than a person does not necessarily protect a business from liability.

* Before engaging the services of a non-employee, review the type and scope of work being performed.

* When entering into agreements with other service providers, obtain appropriate indemnification provisions to protect the company from the wage-and-hour claims of the service provider's workers.

Meanwhile, although DOL was supposed to reducing the chance for litigation with the AI, "there is a real concern that the interpretation actually will result in more litigation and DOL investigations," according to an interpretation from a team of lawyers at Seyfarth Shaw.
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Publication:Inside Counsel Breaking News
Date:Jul 17, 2015
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