President Donald Trump’s Labor Secretary Alexander Acosta withdrew Obama-era informal guidance for independent contractors and joint employment, the Department of Labor (DOL) announced Wednesday.
Under former President Barack Obama, the DOL issued informal guidance on how it would determine if an employer misclassified its employee as an “independent contractor.” The guidance, issued in July 2015, narrowed down what type of worker constituted an independent contractor.
The classification of a paid worker is important for tax purposes, unemployment insurance and eligibility for overtime pay. In an effort to combat perceived economic inequality, the Obama administration issued the narrowed-down definition in an effort to reclassify millions of low wage workers from independent contractors to employees.
Obama’s guidance offered an “economic realities test” that, in essence, reclassified work that was traditionally considered independent contracting as work performed by an employee for an employer. The six-part test on classifying workers as employees or independent contractors examined the following factors:
- 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 his or 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.
Obama’s DOL also issued administrative guidance in that outlined its interpretation of joint employment under the Fair Labor Standards Act.
A joint employer is a scenario where two separate businesses share legal responsibilities over the same employee.
Until 2015, The National Labor Relations Board (NLRB) used a “direct and immediate” control standard for determining joint employer status. If two separate businesses had actual authority over terms and conditions of employment and day-to-day supervision, they would be classified as a joint employer.
In 2015, the NLRB replaced its “direct and immediate” control standard for a broader standard based on “indirect” control in its Browning-Ferris decision. The shift was the first time in decades that the NLRB considered indirect control as the main factor in determining whether a joint employment relationship exists.
The guidance offered a new analytical framework for evaluating joint employment that many in the business community said would increase litigation against employers.
The business community hailed Acosta’s decision to remove these two Obama-era guidance documents as a victory.
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