On June 7, the Department of Labor withdrew two highly provocative interpretive guidance letters issued under President Barack Obama’s administration. The two letters, issued by the Wage & Hour Division (WHD) Administrator, sought to limit instances of misclassification of workers, and expand the instances where a business might be considered a joint employer of a worker.

Both letters were controversial at time of issue, with many in business arguing that the Obama administration was attempting to re-write law via administrative fiat.

By pulling the guidance, most employers can breathe a sigh of relief.

The first letter, Administrator Interpretation No. 2015-1, was issued on July 15, 2015, and provided interpretive guidance on how the WHD would define an “independent contractor” in a more narrow manner.

[Image credit: Bloomberg]
[Image credit: Bloomberg]

In particular, the guidance stated that the DOL would deemphasize its reliance on whether a business “controls” the operations of the individual’s work, and would instead focus more on the “economic realities” of the individual’s work situation. That is, the focus would be on whether the worker was economically dependent upon the business/employer.

This was a significant departure from the prior approach which had relied upon the “controls test” for determining independent contractor status, with the net result being that more workers would likely be determined to be employees as opposed to independent contractors. And, those workers would now, therefore, be eligible for overtime compensation and other employee-related benefits.

The second letter, Administrative Interpretation No. 2016-1, was issued on Jan. 20, 2016, and provided guidance on how the WHD would answer the question of “who is the employer” for purposes of determining who has the obligations owed to a specific worker.

This is the “joint employer” issue that has recently plagued McDonald’s and other large franchise operations. The interpretative guidance fundamentally altered the means by which the WHD looked at the employer-employee relationship in a franchise context, but also in staffing agency and other labor contract situations.

Under the guidance, the WHD would review working relationships based on a “vertical” analysis of the employment relationship: “Vertical joint employment exists where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” Again, the WHD was turning to an “economic realities” argument for expanding who may be obligated to a worker for various compensation and other benefits. This was a significant extension of potential liability for employers who secure their workforce (or a portion of it) through third parties.

The two administrator interpretations worked together to considerably expand the view of “who is an employer” for purposes of allowing the DOL to ensure workers were more “adequately” protected and supported the arguments which the DOL administrator at the time (David Weil) pursued relative to his “fissured” workplace analysis.

While it appears that the Trump DOL is now attempting to step back from this augmented approach to the “employer” definition, the question remains whether simply withdrawing the two interpretative guidance letters is enough. Although the two letters are now withdrawn (and no longer accessible on the DOL website), the two fact sheets that address these concepts remain:

· Fact Sheet #35: Joint Employment Under the Fair Labor Standards Act (FLSA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA) (Jan. 20, 2016)
· Fact Sheet #13: Am I an Employee? Employment Relationship Under the Fair Labor Standards Act (FLSA) (May 2014).

Perhaps these will be next to go?

This article originally appeared on the Foley & Lardner website. The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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Daniel Kaplan

Daniel Kaplan

Daniel A. Kaplan is a partner and litigation attorney with Foley & Lardner LLP.