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U.S. Department of Labor Withdraws Key Obama-Era Guidance on Independent Contractor and Joint Employment Status

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June 26, 2017
On Wednesday, June 7, 2017, the U.S. Department of Labor (US DOL) issued a three sentence statement trumpeted by national news and happily noted by many employers. The recently-confirmed Labor Secretary, Alexander Acosta, personally announced that he has withdrawn the US DOL’S two Interpretations on two key legal issues worrying many businesses: joint employment and independent contractors

These two withdrawn U.S. DOL Interpretations were issued in 2015 and 2016 during the Obama Administration and were widely viewed as “anti-business” at that time. The Obama-approved Interpretation on joint employment (issued in 2016) called for greater legal scrutiny of business arrangements where multiple companies appear to jointly employ workers.  This naturally worried many business owners. The Obama-approved independent contractor Interpretation (issued in July 2015) aimed to discourage the misclassification of employees as independent contractors. This Interpretation also caused deep concern among many business owners who used independent contractors.

US DOL’S STATEMENT: The June 7, 2017 statement by Labor Secretary Acosta cautioned that the withdrawal of the two (Obama-approved) Interpretations “does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law.” Acosta warned on June 7, 2017 that the U.S. DOL “will continue to fully and fairly enforce all laws within its jurisdiction.”

THIS ACTION NOT LIKELY TO CHANGE LEGAL LANDSCAPE OF INDEPENDENT CONTRACTOR MISCLASSIFICATION: This June 7, 2017 announcement by Labor Secretary Acosta is being optimistically interpreted by many employers as a major shift in enforcement position of the US DOL in favor of employers.  This recent announcement and withdrawal is, however, unlikely to significantly change the legal landscape of independent contractor misclassification, which is now handled mostly in a growing number of private class action lawsuits and state unemployment insurance audits and proceedings – not by the US DOL.
 
Strangely, Labor Secretary Acosta did not provide a rationale at all for the sudden withdrawals in his June 7th announcement. The decision by Labor Secretary Acosta to withdraw the independent contractor Interpretation should not be viewed as a reliable sign to businesses that the US DOL will now abandon all of its enforcement efforts against companies who are misclassifying independent contractors. Some degree of continuing enforcement in the independent contractor vs. employee area by the U.S. DOL should be expected regardless.

The Obama-era Interpretations of 2015 and 2016 were not actually law, but they served as a guide for the U.S. DOL’s Wage & Hour Division in its enforcement efforts. Withdrawal of the Obama-era Interpretations signals that the Trump Administration U.S. DOL will likely be less aggressive in its enforcement efforts in these two areas. However, state laws often differ from federal laws with regard to independent contractor tests and joint employment status. It is not clear whether the U.S. DOL will be issuing new standards or clarification after withdrawing the two Interpretations. What, if anything, will now replace them?

PRACTICE TIP: In light of these questions, developments and continuing state unemployment insurance audits, employers should seek legal counsel when considering whether to engage someone as an independent contractor. Additionally, employers should evaluate their existing websites and independent contractor relationships (and independent contractor agreements). Strengthen these relationships before you are hit with a costly legal challenge!
 
For assistance with independent contractor hearings or issues or restructuring independent contractor relationships or agreements to reduce risk, contact Attorney Nancy E. Joerg who can be reached at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com
Contact:
Nancy Joerg, Managing Partner
najoerg@wesselssherman.com, (630) 377-1554