Labor attorneys held a webinar to inform employers about the latest developments from the U.S. Department of Labor, which included clarification on joint-employer standards and independent contractor classification.
REPORT FROM THE U.S.—Though the administration of U.S. President Donald Trump has been in office six months, and there are signs of movement to reverse some labor laws enacted by the previous administration, many of those laws remain in place.
During the “Joint- and multi-employer, independent contractor and temp worker employment law and OSHA issues” webinar hosted by law firm Conn Maciel Carey, labor attorneys explained what employers need to know and follow within the existing but potentially changing labor law landscape.
Joint-employer responsibility has developed from case law most notably under the National Labor Relations Board, said Jordan Schwartz, partner in the labor and employment practice group. In 2014, the NLRB expanded the definition of joint employer to include a company’s use of a contractor to exercise direct or indirect control over the essential terms and conditions of a worker’s employment—namely things like hiring, firing, direction and discipline, he said.
In 2015, the board decided in the Browning-Ferris case that even though temporary workers performed different tasks than employees at Browning-Ferris Industries and were hired, supervised and fired by onsite managers from the temp agency, Browning-Ferris was a joint employer because it submitted its own hiring criteria to the temp agency for the temp workers and it reserved the right to dismiss them.
“Reserved authority to control the terms and conditions, even if they’re not exercised, is clearly relevant to the joint-employer inquiry,” Schwartz said.
The new test as of 2015 is still the law, Schwartz said. It has not been reversed or changed in any way, he said, and employers might still be deemed a joint employer if they don’t exercise control over the conditions of employment but their contract would allow them to at some point.
“This should cause you, as an employer, to review contracts with your contracting companies and staffing partners,” he said. “Assess your legal risks through joint-employer relationships. Take immediate action to mitigate your risks.”
When contracting with another company for staffing and operations, employers should make sure not to interfere with the hiring and firing of employees, Schwartz said. As long as the contractor doesn’t violate any laws, he said, there’s no need for the company hiring the contractor to be concerned about the employees being hired or fired.
Similarly, employers hopefully work with a third-party company that requires its own security background checks and drug testing, he said, because that is also the type of involvement that could implicate them as a joint employer.
A 2016 NLRB case reversed a decades-old precedent, allowing temp workers to form bargaining units with regular employees without employer approval if they share a community interest, he said. This bolsters the impact of the Browning-Ferris case by making it easier for temp employees to unionize, he said.
Last month, U.S. Secretary of Labor R. Alexander Acosta announced the Department of Labor was withdrawing its previous memo on the joint-employer standard, Schwartz said. While the employer community hailed this decision, it’s only the first step in a series of steps for the labor department to move away from the fissured workplace theory toward a more traditional role of relationships, he said.
“Keep in mind, the Department of Labor has emphasized the rescission of the memo doesn’t change the standards under the (Fair Labor Standards Act),” he said. “It doesn’t change the Browning-Ferris case. It does not reverse it. It does not change the law.”
What it does show is the new administration is leaning the other way, he said, and there is some potential legislation on the backburner. Republicans are pushing for a one-year hold on the joint-employer standard in the appropriations legislation, he said, but that would require 60 senators to avoid the filibuster.
A reversal of the Browning-Ferris case is more likely, he said. There are two Republican nominees expected to be confirmed on the NLRB by August, he said.
Classifying independent contractors
The FLSA requires employers to pay their employees at least the federal minimum wage and overtime for any hours past 40 hours in a week, said Lindsay DiSalvo, an associate in the OSHA and labor and employment practice groups, but it does allow an exception for workers properly classified as independent contractors. However, implementing this exception opens employers up to the risk of misclassifying employees as independent contractors.
“Proper classification is really important,” DiSalvo said. “If they’re wrongly classified, a worker could have a significant claim for lost wages or overtime under the FLSA, along with other damages provided in the act.”
That becomes more significant if more than one worker claims to be misclassified or actually is misclassified, she said.
The Department of Labor has made it a priority to address the classification of independent contractors, she said, as demonstrated by its misclassification initiative. The Department of Labor and the Internal Revenue Service are working together and sharing information to investigate and reduce the incidences of misclassification of employees, and 37 state agencies have signed memorandums of understanding with the two federal agencies to share information for broader enforcement nationwide, DiSalvo said.
The proposed federal budget for fiscal year 2018 includes an increase in funding for this initiative, she said, but it’s unclear how much would go toward enforcement efforts. Supporting documents mention compliance assistance, which would include guidance to help employers understand how to classify accurately, she said.
There are several factors and tests to evaluate whether an employee is an independent contractor, DiSalvo said. The wage and hour division from the Department of Labor states one such test is whether the employee is economically dependent on the employer; if they are, they would be considered an employee.
Another test is the nature and degree of control over a worker, DiSalvo said, and looking at the extent of the individual’s work and how integral it is to the company. There’s also the permanency of the employment relationship, as well as whether the worker invests in equipment and facilities. Other factors include the worker’s opportunities for profit and loss, as well as their level of skill, initiative and independent judgment.
To stay within compliance, DiSalvo recommended memorizing the terms and conditions for the independent contractor in a contract. While courts have found a full employment relationship in some cases even with a contract, having one in place does support the argument for an independent contractor relationship, she said. Define it in a way that establishes the independent contractor is not an actual employee, she said, and have it signed by the organization and the contractor.
She also recommended that employers establish policies to limit direct control over the work of independent contractors, and train managers how to interact with independent contractors and make them aware of the policies. It’s important, she said, to establish a fixed, limited-duration employment relationship and limit the interaction between employees and independent contractors, making it obvious there’s a difference in how they are treated.
If there is training for the independent contractor, it should be kept separate from the employees’ training, she said. If there’s something that needs to be communicated to both employees and independent contractors, it should be done in separate correspondence. Independent contractors also should be excluded from social events for the benefit of full-time employees, she said, and should not be issued an employee handbook.
It appears the Trump administration is pulling back on the definition of who is an employee versus an independent contraction, DiSalvo said. The wage and hour division wrote in July 2015 that most workers should be treated as employees under the FLSA’s broad definitions, she said, but Acosta recently withdrew that guidance.
“It doesn’t change the legal responsibilities,” she said. “It does indicate the possibility for a narrower interpretation under the FLSA. It’s a first step for the administration. We still have to wait and see how they proceed from here.”