Well…I hate to say I called it but…on May 6, 2021, the U.S. Department of Labor (DOL) issued a final rule at 86 FR 24303, withdrawing the Independent Contractor Status rule issued January 7, 2021. As you may recall, that rule was set to change the test as to whether a worker was an independent contractor or employee. While the DOL previously used the “economic realities” test, the new rule would have used an “economic dependence” test. The new test would have narrowed the definition of “employee”, allowing more individuals to classify as independent contractors. Alas, we are back to where we were with the DOL using the economic realities test.

What is the test, you ask? Well, it is not the same test the IRS uses (confusing, I know), but is based on the concept that there are seven factors to consider:

  1. The extent to which the services rendered are an integral part of the principal’s business.
  2. The permanency of the relationship.
  3. The amount of the alleged contractor’s investment in facilities and equipment.
  4. The nature and degree of control by the principal.
  5. The alleged contractor’s opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with other required for the success of the claimed independent contractor.
  7. The degree of independent business organization and operation.

Keep in mind that the following common misconceptions are not sufficient alone (the economic realities test must still be met):

  • An employer and worker cannot agree on a classification – if the worker does not meet the criteria, they must be paid as an employee.
  • Remote work
  • Providing a 1099 (versus W-2)
  • State or tax law does not determine FLSA status
  • Using an EIN, LLC, etc.
  • Executed independent contractor agreement
  • Paying in cash, check, etc. to an entity other than the worker

In other words, I’ve said it before – if it looks like a duck, quacks like a duck, the DOL is going to say it’s a duck.

I have spent plenty of time in the quaint small town of Plainview, Minnesota (where the City snowplow is a tractor and dump truck team), and so it’s fun to write about this one, but I feel for the City (which voted to sell the liquor store in August 2020 while this appeal was pending). On February 3, 2021, the Minnesota Supreme Court issued its decision in Hall v. City of Plainview, 2021 WL 359508 (Minn. 2021) holding that  a paid time off (PTO) policy in an employee handbook was a unilateral contract, even though the employee handbook had broad disclaimer language that no contract was created by the handbook. Minnesota has long held that broad disclaimer language in an employment handbook is sufficient to convey intent not to create an employment contract. So what went wrong?

In this case, the Plaintiff, Donald Hall (Hall), managed the city’s liquor store, and accumulated over 1,778 hours (almost 11 months) of paid time off (PTO). Now, the first part of the story (I try not to digress but this is important) is that employers should consider a cap on PTO, or a maximum carry-over so that any payout is not bank-breaking. In any event, upon termination, Hall sought a payout for his PTO, citing the detailed PTO payout policy in the City’s handbook. The City refused, citing a general disclaimer in its handbook that the handbook, “is not intended to create an express or implied contract of employment between the City of Plainview and an employee,” and the lawsuit ensued. The Minnesota Supreme Court ultimately held that the handbook’s PTO policy was sufficiently specific as to create a contract , and the general handbook disclaimer was too broad and ambiguous to allow the City to not follow the PTO policy requiring payment upon termination. Accordingly, the Court held that Hall was entitled to his PTO payout.

Given this ruling, employers should (besides capping PTO/vacation as discussed above), review the disclaimer language in your employee handbook (every employer should have at least one “at-will” disclaimer!), and consider whether more precise and detailed language is needed to clearly communicate intentions regarding contractual obligations (or lack thereof).

Regardless of whether you call it a teeter totter or seesaw, the DOL continues its ups and downs with its interpretations of important laws. You may recall my January 7, 2021 post reminding all y’all of the U.S. Department of Labor (“DOL”) final rule regarding the DOL’s adoption of the “economic reality test” for determining whether a worker is an employee or independent contractor.  That new rule was set to go into effect March 8, 2021. However, the Biden Administration issued a regulatory freeze, postponing all effective dates for any rules not yet in effect. Accordingly, on February 5, 2021, the DOL delayed the effective date to May 7, 2021. However, I will not be surprised if the DOL scraps the economic reality test (and the new rule altogether), in favor of the three-prong “ABC test” used by California (the home state of Julie Su, Biden’s nominee for DOL Deputy Secretary). The ABC test presumes that a worker is an employee unless the employer proves otherwise. So, stay tuned as the teeter is tottering. Or is the see-sawing?

I know you’re thinking, what possibly can a turtle hiding in his shell have to do with wage and hour law?! Since the Biden Administration has begun, several Department of Labor (DOL) opinion letters have been withdrawn (get it yet?) by the DOL (and are no longer assessable). In this instance, they may no longer be relied upon. Employers who changed their practice based on one of the following opinion letters should revisit the issue:

  •  FLSA2021-9 (whether tractor-trailer truck drivers are employees or independent contractors).
  • FLSA2021-8 (whether distributors of manufacturer’s food products are employees or independent contactors).
  • FLSA2021-4 (addressing tip pooling that includes servers (tip credit in some states – not MN) and hosts and hostesses (no tip credit).
  • FLSA2019-10 (addressing compensation for time spent in a truck sleeper berth while relived of duty).
  • FLSA2019-6 (whether virtual marketplace company is an employee or independent contractor).

Notably, between 2009-2017, during the Obama Administration, the DOL did not issue any Administrator opinion letters. From 2018-2021, the Trump Administration issued seventy (70) opinion letters. Accordingly, only time will tell whether the Biden Administration will issue any new opinion letters.

In Opinion Letter FLSA2021-7, the second of four opinion letters released today, the U.S. Department of Labor clarified that journalists – no matter whether they work for a major newspaper or small-town community paper – may qualify for the creative professional exemption. In order to qualify, journalists must have a primary duty that requires, “invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” 29 C.F.R. 541.300(a)(2)(ii). Referencing Encino Motocars, LLC v. Navarro, 138 S. Ct. 1134 (2018), the DOL noted that it no longer reads the FLSA’s exemption strictly, as the Supreme Court has made it clear that is an incorrect reading. In short, while the opinion letter goes through the history of this exemption for journalists (including the DOL’s historical view that the majority of journalists were non-exempt), the takeaway is that, the DOL has confirmed that any journalist may qualify, no matter the circulation, so long as they meet the salary level, primary duties test, and whose work product is not subject to the employer’s substantial control.

Here’s one I didn’t see coming – the U.S. Department of Labor (DOL) issued Opinion Letter FLSA2021-6 today, along with three others (see my other blog posts), which concluded that staffing firms that recruit, hire, and place employees on temporary assignments with clients may qualify as a “retail or service establishment” for purposes of an overtime exemption under 29 U.S.C. 7(i) – commonly referred to as the “retail sales exemption”. What makes this opinion so notable is that prior to May 2020, the DOL actually had “employment agencies” on its list of examples of establishments that categorically could not qualify for the retail sales exemption (the DOL withdrew the list as it was called a “mindless catalog” and incohesive buy several courts).

Citing Encino Motorcars, LLC v Navarro, 138 S.Ct. 1134 (2018), the DOL reiterated that the U.S. Supreme Court’s holding now requires the FLSA be given a “fair”, rather than “narrow”, interpretation.  In order to determine whether a staffing firm is a “retail or service establishment” three factors must be met: (1) it must engage in sales of goods and services; (2) 75% must be retail (as recognized in its industry); and (3) not more than 25% of such sales may be for resale. Thus, under a “fair” reading of 7(i), the DOL noted that staffing firms may qualify as a “retail or service establishment when the three factors are met:

  1. A staffing agency provides temporary staffing and permanent recruitment services – this qualifies as “sales of goods or services”.
  2. While not opining as to whether the staffing industry recognizes such services as “retail”, that is not (by itself) controlling, and that “WHD sees no reason why staffing firms cannot also qualify” as having a retail concept – meeting the second factor. The DOL noted that the “sales of recruitment and staffing services may be properly recognized as retail by the staffing agency.”
  3. The third factor will be met unless the particular staffing company refers a worker (for a fee) to a second staffing company (that ultimately assigns the individual worker to a business).

Finally, as exciting as this may be, keep in mind that even if the employer (temporary staffing agency) meets the exemption requirements, the employee must also meet three factors to be exempt from overtime under the 7(i) exemption: (1) work at a retail or sales establishment (see above analysis); (2) their regular rate must be at least 1.5x minimum wage; and (3) more than 50% of their earnings must be commissions based. Thus, the only individuals this would practically apply to are likely temporary salespersons who make at least 1.5 times minimum wage, but obtain most of their compensation based on commissions.

On January 8, 2021, the U.S. Department of Labor (DOL) issued opinion letter FLSA2021-1.  Spoiler alert – the DOL determined that account managers at a life science products manufacturer were properly classified as exempt from overtime based on the administrative exemption. These employees have at least a bachelor’s degree in a life science (or a bachelor’s and 5 years experience in life sciences). They consult with scientists, learn what they need, research what company products would meet those needs, and communicate how the products could fit the scientist’s needs. They are not closely supervised, have autonomy, are not required to follow laid out script or sales processes and must independently develop account plans and strategies and decide how to respond to potential customers. They assist the customer in developing scientific protocols for using the equipment and ensuring reproducible results. Seems pretty straight forward to me, so nothing new and earth-shattering in this opinion letter if you are not a life science business. Notably, however, I did find it interesting that the DOL did not address the professional exemption. Perhaps that is what this particular employer was hung up on. In any event, the administrative exemption test was met.

The EEOC announced today that it will start collecting 2019 and 2020 EEO-1 Component 1 Data (employment data categorized by race/ethnicity, gender and job category) for private employers beginning in April 2021. Note, this still does not include the controversial Component 2 Data (compensation data). While 2019’s data would have normally been due last year, it was delayed due to COVID-19. Specific collection opening dates will be announced on the EEOC’s website, as well as on the new dedicated website for the agency’s EEO data collections at https://EEOCdata.org. As in previ­ous years, a notification letter will (should) be sent to eligible filers. If you have questions on what an EEO-1 report is or if your business needs to complete one, you can check out other posts on this blog.

As I blogged about a few months ago, on September 22, 2020, the U.S. Department of Labor (DOL) announced a proposed rule simplifying the test to determine whether a worker is considered an “employee” under the Fair Labor Standards Act (FLSA) or an “independent contractor”. On January 6, 2021, the DOL announced the final rule, effective March 8, 2021.

The new rule clarifies that the DOL will use the “economic reality” test as the basis for whether a worker is an employee or independent contractor. The “economic reality” test considers whether a worker is: 1) in business for him/herself (thus, an independent contractor); or 2) economically dependent on an employer for work (thus, an employee). The DOL identifies two “core factors” in the analysis: 1) the nature and degree of the worker’s control over the work; and 2) the worker’s opportunity for profit or loss based on initiative and/or investment. These core factors hold the greatest weight in this determination. However, three lower impact factors to consider include: 1) the amount of skill required for the work; 2) the degree of permanence of the working relationship between the worker and the potential employer; and 3) whether the work is part of an integrated unit of production. Nonetheless, the DOL notes that treatment of the worker is more relevant than what is included in the worker’s contract (where applicable).

In addition, the DOL clarified in the summary (but not the actual rule) that the offering of certain benefits is not determinative by itself of a certain classification. For example, just because a worker is offered health and retirement benefits does not necessary mean the individual is an “employee” – so long as the offering is not the same as employees (i.e. the contribution should not be the same for employees and independent contractors). However, PTO, vacation and sick time benefits are indicative of an employer-employee relationship (as there is control over the work schedule). Additionally, whether a bonus is indicative of an employment relationship depends on the terms of the bonus – for example, a bonus or profit sharing plan based on performance over a period of time suggests economic dependence, but a contractual fixed bonus for completing a job by a deadline or a certain number of taxes over a fixed period is not more of a business relationship.

Again, employers should keep in mind that the IRS has its own test regarding whether a worker is an independent contractor or employee. Thus, employers should not only analyze the position based on the DOL test but the IRS test as well.

Effective today, December 11, 2020, the State of Minnesota will start processing and allowing unemployment compensation applications from high school students. While state law has not allowed high school students unemployment compensation since 1998, the Minnesota Court of Appeals recently held that they are eligible for Pandemic Unemployment Assistance (PUA). This is federal monies as opposed to state, thus, the exception to the rule. More information is available here. PUA is set to expire December 26, 2020 (as of now). Accordingly, employers (especially those that rely heavily on high school students such as fast food chains), may see a quick spike in such unemployment compensation awards; keep in mind that PUA is the monies that is not ultimately charged back to the employer, however.