DOL Issues New “Economic Realities” Test In Employee vs. Contractor Debate

The “employee vs. contractor” debate made headlines several weeks ago when a California court ruled that the vast majority of Uber’s drivers in the state were improperly classified as independent contractors, and were in reality employees of Uber.

In the midst of renewed debate over how to properly determine employees from independent contractors, the DOL recently issued an Administrator’s Interpretation. The DOL’s new guidance adopts an “economic realities” test, wherein the primary issue is whether a worker is economically dependent on the employer, and therefore an employee, or the worker is in business for herself or himself and not dependent on the employer to make a living. The DOL’s interpretation includes a multi-factor test based on multiple federal court decisions examining the employee vs. contractor issue. Factors to be considered include:

– the extent to which the work performed is an integral part of the employer’s business

– the worker’s opportunity for profit or loss depending on the worker’s managerial skill

– the extent of the relative investments of the employer and the worker

– whether the work performed requires special skills and initiative

– the permanency of the relationship 

– the degree of control exercised or retained by the employer 

The DOL importantly notes that, under the Fair Labor Standards Act, most workers are employees; therefore, in determining the status of a worker, there should probably be a presumption in favor of classifying the worker as an employee. The DOL stresses that no one factor is determinative, and every factor should be considered in determining whether the worker is truly in business for herself or himself, or is economically dependent on the employer. Moreover, the DOL further stresses that only the economic reality is determinative as to the worker’s status — how the employer and worker have decided to label the relationship is not relevant to the analysis.

Leave a Reply

Your email address will not be published. Required fields are marked *