Independent Contractor or Employee?
Historically, employers have avoided liability for wage & hour claims including overtime, minimum wages, rest and meal breaks, and mileage reimbursement by creating or using a labor contractor, which often is still under the company's control. In these cases, California courts held that under the Fair Employment and Housing Act (FEHA), the labor contractor and the company are joint employers and both entities are liable for failure to observe the wage & hour and benefit rights of the employees.
Uber & The Great Employee Debate
There has been a long debate over whether certain workers are technically employees or independent contractors. Now, the latest chapter has been written. In June, the California Labor Commissioner captured the attention of employers across an array of industries when it told Uber Technologies, Inc. that its drivers are not independent contractors, but employees.
Earlier this month the United States Department of Labor decided to weigh in on the controversy by issuing a 15-page Administrator’s Interpretation by Dr. David Weil.
Under the Fair Labor Standards Act (FLSA), employees are vaguely defined as an individual employed by an employer, with an employer being anyone who acts in the interests of an employer in relation to an employee. Under the FLSA, to employ an individual is to permit him or her to work.
It’s not surprising why so many people are confused by what constitutes an employee or an independent contractor by these definitions.
The Department of Labor’s new interpretation, authored by Weil says that an “economic realities” test should be applied to ascertain worker classification. Under said test, the key is whether a worker is “economically dependent” on the employer, which would thereby make him an employee.
In contrast, if the worker is truly in business for him or herself, the worker would be classified as an independent contractor. Essentially, determining a worker’s economic dependence will likely be handled on a case-by-case basis, and would examine a variety of factors, such as the permanency of the work relationship and the degree of control that is exercised by the employer.
Why Correct Classifications Matter
The correct classification is important to workers. From the worker’s perspective, the appropriate classification affects overtime pay, minimum wage, and workers ’ compensation, health insurance, and Social Security taxes.
The DOL’s proposed rule is anticipated to result in up to 5 million independent contractors shifting their classification to employees, thereby entitling them to legal protections under state and federal laws.