In the 6th letter of 2019, the U.S. Department of Labor (DOL) issued Opinion Letter FLSA2019-6, which analyzes whether a worker is an employee or independent contractor. While opinion letters are specific to the employer that has sought the letter, they provide useful insight for all employers. In this opinion letter, the DOL states that it interprets whether someone is an “employee” based on whether the individual, “as a matter of economic reality, follows the usual path of an employee and is dependent upon the business to which he or she renders service.” In short, the DOL notes the “touchstone” of the test is “economic dependence” and whether the worker can work on his or her own terms, freely, and without restriction (such as non-compete, non-solicitation agreements).
The DOL notes the six primary factors to be weighed in determining economic dependence (though it may look at other factors not listed):
- The nature and degree of the potential employer’s control;
- The permanency of the workers’ relationship with the potential employer;
- The amount of the workers’ investment in facilities, equipment, or helpers;
- The amount of skill, initiative, judgment, or foresight required for the worker’s services;
- The worker’s opportunities for profit or loss; and
- The extent of integration of the worker’s services into the potential employer’s business.
My favorite part of the entire opinion letter is thus, however:
In short, while the FLSA has a very broad scope of coverage, it is not so broad that all workers are caught within its reach – far from it….Recognizing this limitation on coverage protects the freedom of workers to operate as independent contractors and remain outside the FLSA’s scope.
This statement by the DOL recognizes that many individuals who desire to be an independent contractor (for whatever reason), and that the interpretation of the FLSA should be made in a fair way, and to allow individuals the freedom to chose to operate outside the employer-employee relationship. That being said, keep in mind that an individual/employer cannot contract around statutorily rights (minimum wage, overtime). Thus, if a person fails the above test, the employer is possibly on the hook for backwages (overtime, minimum wage), taxes, benefits and, if it was sued out, attorneys’ fees (both sides).