In 2011, the Obama Administration began an initiative to rein in the use of independent contractors. On July 16, 2015, the Administrator of the Department of Labor’s Wage and Hour Division, issued Administrator’s Interpretation No. 2015-1 (AI), to give additional guidance regarding the application of the standards for who is an “employee” under the Fair Labor Standards Act of 1938 (FLSA). The stated intention of this AI is to curtail misclassification of employees as independent contractors. However, the AI is admittedly “guided by the overarching principle that the FLSA should be liberally construed to provide broad coverage for workers.” Accordingly, the resulting analysis broadens the scope of who is an “employee” and narrows the scope of who is an “independent contractor,” increasing the likelihood of liability for misclassification and likely disrupting many business models. If the Administrator’s interpretation of the relevant factors were codified into regulations or adopted by courts, the effect would be to severely limit the ability of any business to hire and utilize independent contractors.
The linked article gives a brief overview of the history of how the determination of employee relationship has traditionally been made and how the recent AI redefines the analysis in ways that would transform former independent contractors into W-2 employees covered by Social Security, Medicare, Obamacare, and other rights and benefits.
