Employee or Independent Contractor? The Department of Labor Proposes New Rule to Better Define Independent Contractor Status
On September 22, 20202, the Wage and Hour Division of the Department of Labor (“DOL”) issued a Notice of Proposed Rulemaking (“Notice”) that is intended to clarify the standard for determining whether individuals are classified as independent contractors under the Fair Labor Standards Act (“FLSA”). The proposed rule adds a new Part 795 to Title 29 of the Code of Federal Regulations, entitled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act.”
Many business owners prefer to classify workers as independent contractors in order to reduce expenses. Unlike an employee, an independent contractor is not legally entitled to minimum wage, overtime, or company benefits such as health insurance. Additionally, the business owner is under no obligation to maintain records for individuals classified as independent contractors. The trouble is that in many cases individuals are misclassified as independent contractors when, in reality, they are employees. In the past, courts across the country have implemented varying multifactor tests to determine whether workers are employees or independent contractors. In its Notice, the DOL points out that the “multifactor test, as currently applied, has proven to be unclear and unwieldy.”
The DOL’s proposed regulations are an attempt to clarify the economic realities test and reduce the confusion. The following factors guide the determination of whether an individual is properly classified as an employee or independent contractor. The factors are not exhaustive, and no single factor is dispositive. It should be noted, however, that the first two factors that fall under the “economic reality test” are the most probative and they are afforded greater weight in the analysis than the following three factors.
The Economic Reality Test
This is a test to determine whether a worker is economically dependent on a company for work or if the worker is in business for him or herself. If the worker is economically dependent, the worker is an employee. If the worker is in business for him or herself, the worker is an independent contractor.
Factor One: The Nature and Degree of the Individuals Control Over the Work
This factor would weigh towards the individual being an independent contractor to the extent that the individual, as opposed to the potential employer, exercises substantial control over key aspects of the performance of the work. Examples of an individual’s substantial control include setting his or her own work schedule, choosing assignments, working with little or no supervision, and being able to work for others, including a potential employer’s competitor.
If, however, the potential employer exercises substantial control over key aspects of the performance of the work, such as by controlling the individual’s schedule or workload and/or by directly or indirectly requiring the individual to work exclusively for the potential employer. However, requiring the individual to comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed-upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses (as opposed to employment relationships) does not constitute control that makes the individual more or less likely to be an employee under the FLSA.
Factor Two: The “Opportunity for Profit or Loss”
This factor analyzes the worker’s investment as part of the opportunity for profit or loss. The combined factor would weigh in favor of the individual being classified as an independent contractor if he or she has an opportunity for profit or loss based on either or both:
- The exercise of personal initiative, including managerial skill or business acumen; and/or
- The management of investments in, or capital expenditure on, for example, helpers, equipment, or material.
This factor would weigh in favor of the individual being an employee to the extent the individual is unable to affect his or her earnings through initiative or investment or is only able to do so by working more hours or more efficiently.
If these factors do not point in the same direction, there are three other considerations that are still relevant “guideposts.”
Factor Three: The “Skill Required”
This factor weighs in favor of classification as an independent contractor where the work at issue requires specialized training or skill that the potential employer does not provide. Otherwise, it weighs in favor of classification as an employee to the extent the work at issue requires no specialized training or skill and/or the individual is dependent upon the potential employer to equip him or her with any skills or training necessary to perform the job.
Factor Four: The “Permanence of the Working Relationship”
This factor would weigh in favor of an individual being classified as an independent contractor where his or her working relationship with the potential employer is by design definite in duration or sporadic. In contrast, the factor would weigh in favor of classification as an employee where the individual and the potential employer have a working relationship that is, by design, indefinite in duration or continuous. Note that the seasonal nature of certain work, by itself, would not necessarily indicate independent contractor classification.
Factor Five: The “Integrated Unit”
This factor should consider “whether the work is part of an integrated unit of production.” This factor weighs in favor of an individual being an independent contractor to the extent his or her work is segregable from the potential employer’s production process. Conversely, where an individual works closely alongside conceded employees and performs identical or closely interrelated tasks as those employees, such individuals are more properly classified as employees.
What if a State has a Law Adopting a Different Test?
Some states have passed laws that make it challenging to classify a worker as an independent contractor. For example, under Colorado law, a worker is presumptively an employee unless:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
- The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the work performed.
If you are in Colorado, or a state with a law providing workers with more protection than the Department of Labor’s proposed rule, you must follow state law. Companies that are in states providing workers with less protection than the Department of Labor’s proposed rule will need to comply with the final version of the federal regulation.
Can you require employees to get a flu shot?
The Centers for Disease Control and Prevention (“CDC”) recommends that, with rare exceptions, everyone six months and older should get a flu vaccine every year. The CDC has emphasized the importance of getting the flu vaccine this year and that it is “more important than ever during 2020-2021 to protect yourself and the people around you from flu, and to help reduce the strain on healthcare systems responding to the COVID-19 pandemic.”
This year employers are more concerned than ever with ensuring that their employees stay healthy and productive because not only does the flu pose a threat to employee’s health and safety, there is the ongoing threat the COVID-19 pandemic poses for the health and safety of all. As such, many employers are considering whether to require their employees be vaccinated for the flu to protect their workforce.
Employers have an obligation to provide a workplace free from serious recognized hazards under the federal Occupational Safety and health Act (“OSHA”). In order to comply with that requirement, employers have the right to establish legitimate health and safety standards, policies, and requirements so long as they are job related a consistent with a business necessity. The extent to which an employer can implement policies that mandate employees be vaccinated will depend largely on the employer’s industry and location. For example, a mandatory flu vaccine is more likely to be appropriate for employers in the healthcare industry. As such, courts in a number of jurisdictions have held that these workers can be required to receive vaccinations, such as rubella or flu, as long as the requirement is job-related and consistent with business necessity.
However, a strict vaccination policy that makes no exceptions will likely run into afoul of employee’s rights under Title VII of the Civil Rights Act of 1964. There are two important exemptions to mandatory vaccination requirements. An employee may be exempt from a vaccine requirement policy if they have a qualifying disability under the Americans with Disabilities Act (“ADA”) which prevents them from safely receiving the vaccine. For example, a person with a life- threatening allergy to the ingredients in the vaccine or those with disorders such a Guillain-Barré Syndrome, should not be vaccinated for the flu. Also, under Title VII, an employee who objects to receiving a vaccine based on a sincerely held religious belief, practice, or observance may be exempt from a mandatory vaccine requirement. Courts have broadly interpreted “religion” in this context. For example, one federal court concluded that veganism qualified as a sincerely-held religious belief, thereby exempting a vegan employee from the flu vaccine requirement because the vaccine was produced from chicken eggs and would, therefore, be against the employee’s vegan beliefs.
Employees may also object to getting the flu vaccine because they ascribe to the social movement against vaccinations. This has become a charged social and political issue. Under Title VII, an employee who has secular objections based on personal, political, sociological, and economic rationale to getting a flu vaccine is not entitled to religious protection. Employers should be careful, nonetheless, as courts and the Equal Employment Opportunity Commission (“EEOC”) tend to construe religion very broadly.
Best Practices
Employers that decide to mandate a flu vaccine when one is not required by state law should tread carefully and consider all the legal obligations and potential ramifications associated with implementing such a policy. The EEOC guidance for pandemic preparedness recommends that “ADA-covered employers should consider simply encouraging employees to get the influenza vaccine rather than requiring them to take it.” Though an employer may be motivated by a desire to protect the safety and wellbeing of their workforce, they must ensure that the mandate is based upon objective facts and related to job duties and workplace needs. The policy should be clearly communicated to employees and uniformly enforced. Managers and supervisors should be trained to recognize and respond to requests for accommodation, even where the employee does not use the word “accommodation.” Employers should ensure that they have a process for addressing such requests for accommodations and that the process is followed and documented. As always, any medical information must be kept confidential and maintained separate from an employee’s personnel file.
The CDC Expands the Definition of “Close Contact.” What Does This Mean for Employers?
The Center for Disease Control and Prevention (“CDC”) expanded its definition of “close contact” to include “someone who was within 6 feet of an infected person for a cumulative total of 15 minutes or more over a 24-hour period starting from 2 days before illness onset (or, for asymptomatic patients, 2 days prior to test specimen collection) until the time the patient is isolated.” This marks a significant expansion from prior guidance, which had defined “close contact” to include only those individuals who spent fifteen consecutive minutes within six feet of an infected individual.
The CDC has also removed the contacts’ use of facemasks as a consideration in the analysis “because the general public has not received training on proper selection and use of respiratory PPE, such as an N95, the determination of close contact should generally be made irrespective of whether the contact was wearing respiratory PPE. At this time, differential determination of close contact for those using fabric face coverings is not recommended.”
Though it is not mandatory for businesses to conform their policies to the CDC guidelines, they are a useful reference point when crafting COVID-19 prevention practices and contract tracing procedures. Closely aligning with the CDC guidelines may also help satisfy the General duty Clause of the Occupational Safety and Health Act (“OSHA”). OSHA may now use this broader definition of “close contact” to support its position that many more COVID-19 cases are “work-related” than previously thought, potentially triggering OSHA recording and reporting requirements.
Given the new CDC guidance, businesses should consider doing the following:
- Educate employees on the new definition of “close contact.”
- Minimize opportunities for brief, but repeated contact with other people in the workplace. For example, if employees previously met in a small conference room for ten minutes each day to discuss work issues, consider changing the frequency of such meetings to every other day.
- Divide the workforce into rotating teams so that only members of one team would need to quarantine after an exposure, thereby reducing the potential impact on the business.
- Enforce stricter physical distancing requirements and limitations on in-person meetings/gatherings to minimize potential cumulative close contact throughout the day.
Finally, employers should continue to monitor state and local laws and guidance as there may be revisions as public health agencies adjust to the new definition of “close contact” and the impact it will have on contact tracing.
Update on the Trump Administration’s Executive Order on “Combating Race and Sex Stereotyping”
Last month we summarized President Trump’s Executive Order “Combating Race and Sex Stereotyping” that impacts workplace training programs used by Government Contractors, recipients of Federal Grants, U.S. Uniformed Services, and Federal Agencies. In response, three civil rights groups filed a federal class-action lawsuit October 29, 2020 challenging the crackdown on diversity training.
Trump’s Executive Order prohibits certain diversity training that the administration says amounts to “divisive, anti-American propaganda.” The NAACP Legal Defense and Educational Fund, National Urban League and National Fair Housing Alliance counter saying that “true patriotism demands confronting the truths of our history – no matter how embarrassing or dishonorable – and undertaking the difficult work of learning from the lessons of our past in order to move forward.”
The departments of State, Justice and Veterans Affairs have suspended all diversity and inclusion training programs while the assess the content to ensure compliance with the Executive Order. Over 160 businesses and nonprofit groups from across the country signed an open letter to the President on October 15, 2020, expressing their concern over the requirements of the Executive Order. The letter said that as currently written, “the E.O. will create confusion and uncertainty, lead to non-meritorious investigations, and hinder the ability of employers to implement critical programs to promote diversity and combat discrimination in the workplace.” They have suspended their training programs as have many universities.
The Executive Order also directed the Department of Labor to establish a government hotline so that “employees and other concerned members of the public” are able to complain about diversity training they find offensive. The hotline has received more than 140 responses in the first five weeks since it was established. The plaintiffs say that the hotline carries with it “alarming . . . echoes of McCarthyism.”
The lawsuit insists that in order for the United States to move forward, we must reckon “with our shameful legacy of racial subjugation of Black people in this country – from slavery and Jim Crow to mass incarceration and police violence – as well as our long history of express discrimination against other people of color, women, and LGBTQ persons.”
Stay tuned for more developments as this legal battle unfolds.