Wage and Hour Defense Blog

Wage and Hour Defense Blog

New California Law Permitting Empoyers To Correct Some Defects In Wage Statements Unlikely To Lead To A Significant Decrease In PAGA Lawsuits

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On October 2, 2015, Governor Jerry Brown signed AB 1506, insulating employers from Private Attorneys General Act (“PAGA”)lawsuits based on employee wage statements if employers cure certain defects in the wage statements within 33 days of being put on notice of them.

The law is being celebrated by some as a major development that will significantly reduce the number of PAGA lawsuits filed against California employers.  Unfortunately, there may be a bit of a misunderstanding about what the new law does and how far it reaches.  While it is certainly a positive step for employers that will insulate them from some PAGA claims, its impact on PAGA lawsuits will likely be minimal, at best.

PAGA allows employees to file suit against their employers for alleged violations of the California Labor Code, and to do so on behalf of all “aggrieved employees.”  And it allows those employees to receive up to $200 per person per violation.  Because each pay period in which a violation occurs is generally considered to be a violation, the potential penalties under PAGA can be enormous depending on the number of different Labor Code violations alleged and the size of an employer’s workforce.

Importantly, PAGA claims are not considered “class actions.” While employers in California have been besieged by wage-hour class actions, they have also been besieged by PAGA claims addressing the same issues.  Sometimes the PAGA claims are filed in the same lawsuit with the class claims; sometimes they are filed as separate lawsuits. However they are filed, PAGA claims are often little more than strategic claims meant to drive up the settlement value of class actions or to force employers to settle claims on a classwide basis.

Most PAGA lawsuits would appear to include claims based on defective wage statements. That is not going to change, at least not in any significant way, with AB 1506.

The new law does not provide that employers must be permitted to cure all defects in wage statements before a PAGA claim can be filed.  Instead, it provides that employers must be provided a brief opportunity to cure a couple of specific defects in employee wage statements once put on notice of those defects through a letter to the state Labor Workforce and Development Agency (“LWDA”). It is limited to the failure to specify the pay period covered by the paycheck, and the failure to provide the employer’s name or address on the wage statement.  That’s it.

For employers whose wage statements don’t include one or both of those items, the new law is obviously a meaningful development.  Once put on notice of those defects, they can cure them by sending out compliant wage statements for the prior 3 years.

However, the impact of the new law on the filing of PAGA lawsuits, including those with wage statement components, will likely be tiny.

Very few PAGA lawsuits are based solely on claims that the wage statements did not include the pay period or the employer’s name or address.  Instead, to the extent individuals bring PAGA claims based on employees’ wage statements, they are typically tied to claims that employees were not paid for all time worked or did not receive premiums for missed meal or rest periods.  That is, the alleged wage statement violation is that the wage statement did not accurately record all of the wages that the employee should have received.  The new law will have no impact on those claims.

While AB 1506 may not have a huge impact on PAGA litigation, all employers with employees in California would be wise to take this opportunity to review their wage statements to ensure that they provide all of the items required by California law, including an identification of the pay period covered by the wage statements and inclusion of the employer’s name and address.  And should they ever receive notice of the defects, they would be wise not only to cure those defects, but to do so for the prior three-year period to avoid PAGA liability for that aspect of the wage statements.



Fifth Circuit Award Of Fees Against The Department Of Labor Shows That Even The Government Is Not Immune To Sanctions

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Practitioners know how difficult it is to obtain an award of fees against the government. However, in an opinion in which the Court states at the outset, “the government here chose to defend the indefensible in an indefensible manner,” the Fifth Circuit Court of Appeals has awarded attorneys’ fees to an employer in a wage-hour dispute based on the Department of Labor’s (“DOL”) bad faith– both in pursuing a legally indefensible case and in the conduct of the litigation.

The case, Gate Guard Services, L.P. v. Perez, 792 F.3d 554 (5th Cir. 2015), is an unusual one But in this case, the government’s conduct was found to be outrageous on two fronts.  The DOL continued to litigate a case long after it became apparent the case was meritless, and it did so in an inappropriately aggressive fashion.

The DOL jumped into the fray when a drinking pal of a DOL investigator, who was inexperienced in classification issues, expressed concern that he had been underpaid by Gate Guard Services, which provided gate attendants for remote drilling sites and treated the attendants as independent contractors.  After interviewing only three witnesses and destroying his original notes, the investigator concluded that the company owed $6 million in back wages, nearly its entire net worth.  Even though there were several violations of the DOL’s internal policy in the conduct of the investigation, the DOL filed suit.

During the course of the ensuing litigation, the government opposed nearly every motion on spurious grounds, even a routine motion to transfer the case to a division where many of the gate attendants and the investigator lived or worked.  During the investigator’s deposition, the DOL’s lead counsel objected 102 times and instructed the witness 18 times not to answer basic questions about his investigation.

To make matters worse for the government, the district court where the case was pending held that gate attendants in another case, with nearly identical facts, were not employees.  The DOL also learned that the Army Corps of Engineers classified its gate attendants as independent contractors.  Gate Guard won summary judgment at the district court level and was also awarded over $565,000 in attorneys’ fees.  Both sides appealed.

The Fifth Circuit did not hesitate to send a message to the DOL and awarded fees for bad faith, noting “[t]he government’s intransigence in spite of its legally deteriorating case, combined with extreme penalty demands and outrageous tactics, together support a bad faith finding.”

While the circumstances presented in this case are certainly unique, it makes clear that employers should not hesitate to seek fees when the government oversteps its bounds—either in pursuing a case that lacks merit or engaging in unethical and spurious litigation tactics.

October 15: Attend Epstein Becker Green’s Workforce Management Briefing – High Stakes and High Priorities

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34th Annual Workforce Management Briefing Banner

When:  Thursday, October 15, 2015    8:00 a.m. – 3:00 p.m.

Where:  New York Hilton Midtown, 1335 Avenue of the Americas, New York, NY 10019

This year, Epstein Becker Green’s Annual Workforce Management Briefing focuses on the latest developments that impact employers nationwide, featuring senior officials from the U.S. Department of Labor and the Equal Employment Opportunity Commission. We will also take a close look at the 25th anniversary of the Americans with Disabilities Act and its growing impact on the workplace.

In addition, we are excited to welcome our keynote speaker Neil Cavuto, Senior Vice President, Managing Editor, and Anchor for both FOX News Channel and FOX Business Network.

Our industry-focused breakout sessions will feature panels composed of Epstein Becker Green attorneys and senior executives from major companies, discussing issues that keep employers awake at night.  From the latest National Labor Relations Board developments to data privacy and security concerns, each workshop will offer insight on how to mitigate risk and avoid costly litigation.

View the full briefing agenda here. Contact Kiirsten Lederer or Elizabeth Gannon for more information and to register.   Seats are limited.

D.C. Employers Must Offer Transit Benefits Starting January 1, 2016

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Brian W. SteinbachAlthough not widely reported, effective January 1, 2016, the District of Columbia joins New York City and San Francisco in requiring employers of 20 or more employees to offer qualified transportation benefits.  By that date, covered D.C. employers who do not already do so must offer one of three transit benefit options.

Under the Sustainable DC Omnibus Amendment Act of 2014, Title III, Subtitle A, “Reducing Single Occupancy Vehicle Use by Encouraging Transit Benefits,” at D.C. Code §32-151, et seq., covered employers must “provide at least one of the following transportation benefit programs to its employees:”

  1. A benefit program that allows employees to elect to set aside pre-tax funds each month to pay for their “commuter highway vehicle [van pool], transit or bicycling” commuting costs, consistent with Section 132(f)(a)(A), (B), and (C) of the Internal Revenue Code;
  2. An employer-paid benefit program in which the employer supplies, at the employee’s election, a transit pass or reimbursement of vanpool or bicycling costs in an amount at least equal to the purchase price of a transit pass for an equivalent trip; or
  3. Employer-provided transportation at no cost to the covered employee in a vanpool or bus operated by or for the employer.

The penalty for failing to offer at least one of these benefit programs is a civil fine pursuant to the Civil Infractions Act, which depending upon the class of infraction ranges from $50 to $2,000 for the first offense.

The D.C. Department of Transportation, in conjunction with other organizations, has engaged in considerable promotion of these requirements. The Employer Services section of its www.goDCgo.com website “offers complimentary assistance every step of the way to make offering commuter benefits easier than ever.” This includes an “Employer Transit Benefits Toolkit” that provides guidance on the steps to implement a compliant program. The Employer Transit Benefits Toolkit has a specific checklist to assist in implementing any of the three options provided under the law. Other useful information available at the Employer Services site includes newsletters with information on compliance assistance and periodic free seminars. The Washington Metropolitan Transit Authority (WMATA) also offers information and seminars on using its “SmartBenefits” program to comply with the Act’s requirements here.

The key takeaway is that covered D.C. employers should move quickly to have a program in place by January 1, 2016.

Meal Periods with Travel Restrictions May Be Compensable

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In Naylor v. Securiguard, Inc., the Fifth Circuit Court of Appeals held that an employer may be required to compensate employees for meal breaks if the employees are required to spend a significant portion of that period traveling to a required break area.

Facts Black white striped sentry box

Securiguard employees guarded several gates to a Naval air station.  During their shifts, the guards received two scheduled thirty-minute meal breaks.  The guards expressed a desire to eat at their posts, but Securiguard prohibited them from doing so (out of concern that the customer would think they were shirking their security duties).

Accordingly, the guards were required to travel to designated break areas on the base.  Some traveled only a few yards, while others had twelve-minute roundtrip drives to the nearest meal area.

The District Court for the Southern District of Mississippi granted Securiguard’s motion for summary judgment. It held that the FLSA requires compensation for a meal break only when an employer imposes “substantial duties or restrictions” during the designated time, and found Securiguard’s restrictions too insubstantial to make the breaks compensable.

Rest periods, meal periods & on-call time

On appeal, the Fifth Circuit cited to 29 C.F.R. § 785.19 for the proposition that bona fide meal periods “are not worktime,” and noted the regulations state: “Ordinarily 30 minutes or more is long enough for a bona fide meal period. A shorter period may be long enough under special conditions.”

Conversely, under 29 C.F.R. § 785.18,  rest periods are “of short duration, running from 5 minutes to about 20 minutes, … promote the efficiency of the employee and … must be counted as hours worked.”

The Fifth Circuit noted that the District Court and the parties compared the restrictions imposed on Securiguard meal breaks to on-call time, in which “the critical question is whether the meal period is used predominantly or primarily for the benefit of the employer or for the benefit of the employee.”

Sufficient time “to use the break for their own purposes”

The Fifth Circuit affirmed summary judgment for Securiguard as to the gates where break areas were “a few yards away,” less than a minute’s drive or “across the street.”

As to the remaining gates, the Fifth Circuit reversed summary judgment for Securiguard and remanded the case because it concluded a jury could decide that, in some cases, the travel time was “a meaningful limitation on the employee’s freedom” during the meal period, and was imposed for benefit of the employer – rendering that time compensable.

The Court also stated that a jury could further conclude that the remaining time was not long enough for employees to qualify as a noncompensable meal period under FLSA.

Accordingly, employers (particularly those in the Fifth Circuit) should evaluate any restrictions imposed on employee meal-periods in light of the ruling in Naylor v. Securiguard, Inc.

Eleventh Circuit Joins Second Circuit in Rejecting DOL Position on Unpaid Interns

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On September 11, 2015 the U.S. Court of Appeals for the Eleventh Circuit announced that it joined the Second Circuit in rejecting the U.S. Department of Labor’s (“DOL”) rigid six part test for determining whether unpaid interns were employees and should have been paid minimum wages and overtime for their services. Schumann and Abraham et al v Collier Anesthesia, P.A., Wolford College, LLC, Thomas Cook and Lynda Waterhouse, No. 14-13169, 2015 BL 294459 (11th Cir. Sept. 11, 2015), citing to Glatt v. Fox Searchlight Pictures, Inc., Nos. 13-4478-cv, 13-4481-cv (2d Cir. July 2, 2015)

As did the Second Circuit, the Eleventh Circuit found the factors considered by the DOL in its “guidance” on interns and trainees and the DOL’s  interpretation of the U.S. Supreme Court’s 1947 holding in Walling v. Portland Terminal Co., 330 U.S. 148 (1947) to be “useful” but refused to defer to that guidance.  Noting that the DOL has no special expertise in interpreting court decisions, the Eleventh Circuit instead followed the Second Circuit in holding that seven non-exclusive factors should be considered to determine whether the intern or the putative employer was the primary beneficiary of the services being rendered:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including clinical and other hands‐on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Eleventh Circuit expressly stated that in applying these factors to determine whether the intern or the putative employer was the primary beneficiary of the interns’ services, no one factor is determinative and every factor need not point in the same direction.  Further, courts may consider other relevant evidence beyond the specified factors in appropriate cases.

Because the District Court had applied the old DOL six factor test in determining that the interns here were not employees, the Court of Appeals vacated and remanded the case back to the District Court to apply the correct test.  In doing so, the Appeals Court went to great lengths to discuss each of the seven factors as applied to the facts at hand and to describe the road map that the District Court should follow, while carefully stating: “we do not take a position at this time regarding whether the students in this case were “employees” for purposes of the FLSA.”

There Are 50 States – and Epstein Becker Green’s Free Wage-Hour App Has Them All

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Wage & Hour Guide for Employers AppMany of our clients have downloaded our free, first-of-its-kind Wage & Hour Guide for Employers app, available for Apple, Android, and BlackBerry devices.

We have just updated the app, and the update is a significant one.

While the app originally included summaries of federal wage-hour laws and those for several states and the District of Columbia, the app now includes wage-hour summaries for all 50 states, as well as D.C. and Puerto Rico.

Now, more than ever, we can say that the app truly makes nationwide wage-hour information available in seconds. At a time when wage-hour litigation and agency investigations are at an all-time high, we believe the app offers an invaluable resource for employers, human resources personnel, and in-house counsel.

Key features of the updated app include:

  • New summaries of wage and hour laws and regulations are included, including 53 jurisdictions (federal, all 50 states, the District of Columbia, and Puerto Rico)
  • Available without charge for iPhoneiPad, Android, and BlackBerry devices
  • Direct feeds of EBG’s Wage & Hour Defense Blog and @ebglaw on Twitter
  • Easy sharing of content via email and social media
  • Rich media library of publications from EBG’s Wage and Hour practice
  • Expanded directory of EBG’s Wage and Hour attorneys

If you haven’t done so already, we hope you will download the free app soon.  To do so, you can use these links for iPhoneiPad, Android, and BlackBerry.

Court of Appeals Restores DOL Regulation Barring Third-Party Employers from Claiming Exemptions for Companionship and Live-In Domestic Service Workers

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Reversing a decision by the United States District Court for the District of Columbia, an August 21, 2015 decHomeHealthision by the Court of Appeals for the District of Columbia Circuit in Home Care Association of America v. Weil (pdf) has approved a regulation by the United States Department of Labor (“DOL”) extending federal minimum wage and overtime protections to home care workers and live-in domestic service employees employed by third parties.

We previously wrote about the decision by the District Court for the District of Columbia that vacated a DOL regulation that had been scheduled to go into effect January 1, 2015. The regulation would have eliminated a long-existing prior regulation and would have barred third-party employers from claiming minimum wage and overtime exemptions for “companionship” domestic service workers and live-in domestic service employees. The same court later also vacated a new, narrower definition of “companionship services.”

The D.C. Circuit thoroughly rejected the district court’s analysis and held that under the Supreme Court’s decision in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007), the question of whether to include workers paid by third parties within the scope of the statutory exemptions for companionship series and live-in domestic service employees was within the discretion of the DOL under its general grant of authority to promulgate implementation regulations.

The D.C. Circuit further found that the new, narrower construction of the statutory exemption was appropriate and consistent with a Congressional intention to include within FLSA coverage employees whose vocation is domestic service, rather than the type of assistance provided by a neighbor or an “elder sitter,” and that this construction was not arbitrary and capricious because DOL justified its shift in policy based on the changes in the industry since the prior regulation issued in 1975.

Finally, the D.C. Circuit rejected arguments that the new regulation would make home care less affordable and create an incentive to re-institutionalize the elderly and disabled, in particular relying on a lack of evidence that this had occurred in states that already had minimum wage and overtime projections for third party-employed home care workers.

Home health care providers already work on narrow margins and typically cannot recover overtime costs from the Medicare, Medicaid or other government program that pay for most of their services only at a flat hourly rate (which sometimes does not reflect recent increases in state and local minimum wages). Providers in states where the exemption was previously available will now have to absorb the costs of any overtime pay. In many cases, this will mean changing schedules to limit to the number of hours a home health care provider works  (thereby causing a reduction in the provider’s income rather than an increase) and hiring additional staff (with attendant additional administrative costs) to cover the hours that a single provider previously worked. This may also be be disruptive to the persons receiving the services, who may prefer having the same persons come every day, rather than multiple providers.

If no further review is sought, the previously vacated regulations could go into effect as early as September 21, 2015. Accordingly, home health providers should begin planning for this transition now. Note, however, that a petition for rehearing or for hearing en banc would delay effectiveness until two weeks after the petition is ruled upon. Also, if review is then sought before the Supreme Court, a stay may be sought. It is also possible that DOL will announce some type of transitional limited enforcement policy, similar to the policy it previously announced (pdf) of not bringing enforcement actions for the first six months of 2015 and exercising “prosecutorial discretion” in the next six months based on the extent to which there had been good faith efforts to bring home care programs into compliance. Home health providers should watch for DOL pronouncements in this regard.

Second Circuit Holds FLSA Cases Cannot Be Settled Without Court Review

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On August 7, 2015 the Second Circuit held that parties cannot enter into private settlements of Fair Labor Standards Act (“FLSA” or the “Act”) claims without  the approval of either the district court or the Department of Labor. Cheeks v. Freeport Pancake House, Inc., No. 14-299 (2nd Cir. 2015).

Although other circuits are split on the issue of whether pre-suit agreements to settle FLSA claims are enforceable, this is the first appellate decision to address the issue of whether judicial approval is required to terminate an FLSA lawsuit once it has been filed. See Lynn’s Food Stores, Inc. v. US., 679 F. 2d 1350 (11th Cir. 1982); Martin v. Spring Break’83 Productions, LLC, 688 F. 3d 247 (5th Cir. 2012). Despite holding that district courts must approve the settlement, the court expressed no opinion regarding “what the district court must consider in deciding whether to approve the putative settlement.”

Unlike most causes of action, which may be settled merely by filing a stipulation of dismissal, courts apply extra scrutiny to FLSA settlements to prevent workers from waiving the protections of the Act. To ensure workers maintain their rights under the FLSA, courts will only enforce FLSA settlements if the settlement amount is for the full amount claimed, or if less, there is “a bona fide dispute between the parties” regarding the amount owed. See Brooklyn Savings Bank v. O’Neil, 324 13 U.S. 697 (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946).

The court rested its holding on the argument that judicial approval was necessary to ensure that private settlements furthered the policy goals underlying the Act. The concern is that plaintiffs may agree to compromise settlement amounts that do not achieve the goal of deterring employers from violating the Act.

Plaintiffs in need of immediate cash may value an immediate settlement at a discounted amount over the potential for a larger judgment at some future date. Although this resolution may be agreeable to both parties, it does not achieve the goal of preventing employers from deriving a competitive advantage by violating the Act.

In dicta, the decision went on to add that “to prevent abuses by unscrupulous employers, and remedy the disparate bargaining power between employers and employees” courts must scrutinize settlement agreements to ensure “employee protections, even where the employees are represented by counsel.”

Other than seeking court approval of all settlement agreements resolving cases with FLSA claims, it remains to be seen how this decision will be used in litigation. Employers should pay particular attention as to whether judges reserve their role to ensuring that the settlement resolves a bona fide dispute, or whether they instead use their power to second guess plaintiff’s counsel and demand more favorable settlement terms.

A question that remains unanswered is whether the federal courts will defer to a decision of an arbitrator in resolving FLSA claims.

The Department Of Labor Addresses Independent Contractor Misclassification And Concludes That “Most Workers Are Employees”

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The Administrator of the Wage Hour Division of U.S. Department of Labor has issued an Administrator’s Interpretation of the FLSA’s definition of “employ.” And the conclusion is one that not only could have a significant impact on the way companies do business, but lead to numerous class and collective actions alleging that workers have been misclassified as independent contractors.

Addressing the misclassification of employees as independent contractors, the Administrator’s Interpretation notes that the FLSA’s defines the term “employ” as “to suffer or permit to work.” Based on that definition, the DOL concludes that “most workers are employees.”

The Interpretation cites to the six-factor “economic realities” test the DOL applies as indicia of employment, but emphasizes certain aspects of that test.  Notably, the Administrator states that the goal of the “economic realities” test is to determine whether a worker is “economically dependent” on the alleged employer, or is really in business for himself or herself.

1.  Is the Work an Integral Part of the Employer’s Business?

The Administrator’s Interpretation emphasizes that a workers’ duties are likely to be an “integral part” of an employer’s business if they relate to the employer’s core products or services.

For example, the Interpretation cited to the Seventh Circuit’s decision in Secretary of Labor v. Lauritzen, a self-described “federal pickle case” in which the issue was “whether the migrant workers who harvest the pickle crop of defendant … are employees … or are instead independent contractors….”

Summarizing the point, the Administrator’s Interpretation quoted the Seventh Circuit’s statement in that case stating that it “does not take much of a record to demonstrate that picking the pickles is a necessary and integral part of the pickle business. . . .”

2.  Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?

The Administrator’s Interpretation emphasizes that the opportunity for profit or loss reflects independent contractor status only when it is dependent on managerial skill.

By contrast, the Administrator opines that the fact that a worker that can increase his or her earnings by working longer hours is not evidence that the worker is an independent contractor

3.  How Does the Worker’s Relative Investment Compare to the Employer’s Investment?

Previously, the DOL had stated that the relative investment of a worker “compared favorably” if the investment was substantial and could be used for the purpose of sustaining a business beyond the particular job or project the worker was performing.

While these factors are mentioned in the new guidance, the Administrator’s Interpretation appears to place greater emphasis on a comparison of the investments of the worker and the potential employer.  The Administrator opines that even if a worker has made an investment, that investment has to be significant when compared to the investment of the purported employer.

4.  Does the Work Performed Require Special Skill and Initiative?

The Administrator’s Interpretation asserts that it is a worker’s business skills as an independent business person, not his or her technical skills, that support independent contractor status.

The Administrator states that only skilled workers who operate as independent businesses, as opposed to being economically dependent on a potential employer, are independent contractors.

5.  Is the Relationship between the Worker and the Employer Permanent or Indefinite?

The DOL’s prior Fact Sheet on independent contractor status stated that the absence of a permanent relationship may not suggest independent contractor status when arising from “industry-specific factors” or the fact that the potential employer “routinely uses staffing agencies.”

The Administrator’s Interpretation adds to this opinion by opining that the finite nature of an independent contractor relationship should be the result of the worker’s “own business initiative.”

Thus, an employer who imposes limits on the duration of its independent contractor relationships should consider whether that policy will continue to have the desired results.

6.  What is the Nature and Degree of the Employer’s Control?

The Administrator’s interpretation emphasizes that an independent contractor must control “meaningful aspects” of the work demonstrating that the worker is conducting his or her own business.  However, the Interpretation does not specifically explain what aspects of a job are “meaningful.”

The Administrator does make clear that flexible work arrangements are common forms of employment.  Therefore, the Interpretation concludes the fact that an individual works from home or controls the hours of work is not particularly indicative of independent contractor status.

While the Administrator’s Interpretation does not have the force of law (or regulation), it will be applied by the DOL and may be given deference by courts.  Accordingly, employers should evaluate the extent to which they are relying on criteria addressed by the Administrator (such as flexible work arrangements and relationships of finite duration) as justification for classifying workers as independent contractors.