The withdrawal of these two administrative interpretations is viewed as a win for business groups, who argued the guidance—which brought more employees under the FLSA’s protection—would increase litigation over misclassification and joint employment issues. However, in its news release the DOL’s Wage and Hour Division stated that its withdrawal of these two administrator documents “does not change the legal responsibilities of employers” under federal wage and hour laws and that it will “continue to fully and fairly enforce all laws within its jurisdiction,” including the FLSA and MSPA.
In the absence of these guidance documents and the various test factors delineated by the DOL, courts likely will revert to pre-guidance interpretations of independent contractor classification and joint employment as determined by courts in each jurisdiction.
Independent Contractor Misclassification
In the misclassification analysis context, courts apply a traditional economic realities test to determine whether an individual is an employee under the FLSA. While no single factor is determinative and the entirety of the relationship must be examined, most, but not all courts generally consider some combination of the following factors when applying the economic realities test:
the degree of control exercised by the alleged employer over the manner in which the work is to be performed;
the alleged employee's opportunity for profit or loss and investment in the business;
the degree of skill and independent initiative required to perform the work;
the permanence or duration of the working relationship;
the extent to which the work is an integral part of the business; and
the extent of the relative investments of the employer and worker.
Courts have interpreted the economic realities factors vastly differently depending on the facts and jurisdiction, or even within the same jurisdiction. Absent the DOL’s guidance, courts will continue to use the traditional FLSA-specific (and in some cases, narrower) economic realities test to perform factor-by-factor examinations and conduct situational and fact-intensive analyses.
To determine whether entities are joint employers for purposes of the FLSA, the various federal judicial circuits use different tests. The following chart outlines which tests and factors are generally used in the various circuits. Despite the differences in these tests, courts have emphasized, with near-unanimity, that the inquiry is a flexible one, that all factors need not be satisfied in a given case, and that the central question is the economic realities of the situation at issue. Therefore, these factors should be used as reference points only and not applied mechanically.
FLSA Joint Employment Test
Economic Realities Test—Bonnette Version:
Power to hire/fire
Supervision and control over employee work schedules or conditions of employment
Rate and method of pay
Maintenance of personnel records
Multi-Factor Test Related to Economic Realities Test:
Four Bonnette Factors–plus “Functional Control” Analysis:
whether the putative employer’s premises and equipment were used for the work;
whether the direct employer had a business that could shift as a unit from one putative joint employer to another;
the extent to which the workers performed a discrete line-job that was integral to the putative employer’s process of production;
whether the responsibility under the contracts between the direct and putative employers could pass from one entity to another without material changes;
the degree to which the putative employers or their agents supervised the work; and
whether the workers worked exclusively or predominantly for the putative employer.
Enterprise Test—Version of Economic Realities Test:
Authority to hire and fire employees
Authority to promulgate work rules and assignments and to set the employees’ conditions of employment, including compensation (rate and method of payment), benefits, and work schedules
Day-to-day employee supervision, including employee discipline
Actual control of employee records, such as payroll, insurance, or taxes
Economic Realities Test:
the degree of control that the alleged employer has over the manner in which the work is performed;
the worker’s opportunities for profit or loss dependent on his or her managerial skill;
the worker’s investment in equipment or material or his employment of other workers;
the degree of skill required for the work;
the permanence of the working relationship; and
the degree to which the services rendered are an integral part of the alleged employer’s business.
Economic Realities Test—Bonnette Version
The Sixth Circuit does not have controlling case law under the FLSA.
Economic Realities Test—Bonnette Version
While the Bonnette version applies, the Seventh Circuit has explicitly cautioned that many other (unstated) factors may be relevant from case-to-case.
The Eighth Circuit does not have a circuit-level test or a district-level consensus.
Elizabeth Ebanks is a Shareholder in the Richmond office of Ogletree Deakins where she focuses her practice on employment litigation and employment counseling. Ms. Ebanks has significant experience litigating discrimination, harassment and retaliation claims in federal and state courts and before various administrative agencies, including the Equal Employment Opportunity Commission and Employment Commissions. Elizabeth also regularly assists and defends employers against wage and hour claims,...
Nancy is Of Counsel in the firm's Richmond office. She focuses her practice on employment litigation and employment counseling. Nancy has experience defending employers against discrimination, wrongful termination, harassment and retaliation claims in federal and state courts and before various administrative agencies, including the Equal Employment Opportunity Commission. Nancy also has litigated various business tort matters involving corporate trade secrets, breach of contract,...