by James Korte
UPDATE: On January 26, 2021, the DOL withdrew multiple Opinion Letters. Read the latest DOL developments here.
As you may have noticed from our recent blog posts, the Department of Labor (“DOL”) has been busy. On the Trump Administration’s last full day in office (Tuesday, January 19, 2021), the DOL issued four new Opinion Letters—on top of the three Opinion Letters released on January 15th and the two Opinion Letters released on January 8th. Two of these most recent Opinion Letters discuss and analyze Fair Labor Standards Act (“FLSA”) exemptions, and the other two discuss the test to determine whether an individual should properly be classified as an employee or an independent contractor.
FLSA 2021-6: In its first letter of the day, the DOL addressed the question of whether the FLSA’s “retail or service establishment” exemption could apply to staffing firms that recruit, hire, and place employees on temporary assignments with other companies.
To qualify as a “retail or service establishment,” the following elements must be met:
- A business must “engage in the making of sales of goods or services”;
- “75 percent of its sales of goods or services, or of both, must be recognized as retail in the particular industry”; and
- “Not over 25 percent of its sales of goods or services, or of both, may be sales for resale.”
The DOL explained that, while a staffing firm may satisfy all three requirements for this exemption, this determination requires a case-by-case analysis. For example, a staffing agency that refers candidates to other staffing firms may not meet the third requirement, as this would be “resale.” Additionally, even if an establishment can satisfy this test, whether a particular employee of a specific staffing firm actually qualifies for the exemption will also require a case-by-case analysis.
This letter opens the door for staffing agencies seeking to avail themselves of the “retail or service establishment” exemption, as until recently “employment agencies” were included on a list of establishments that “categorically” could not qualify for this exemption because they did not fit the “retail concept” required under the second element.
FLSA 2021-7: The DOL’s next Opinion Letter discussed when certain local (small-town and community) news source journalists qualified as “creative professionals” under Section 13(a)(1) of the FLSA, and thus were exempt from minimum wage and overtime requirements. For the last 16 years, the DOL’S position has been that the majority of journalists are not “creative professionals” because they simply collect and organize information that is already public. Moreover, “small town” reporters have historically been the example given of the type of “reporting” that does not demand “skill or expertise,” much less “creativity and innovation.” In this Opinion Letter, the DOL appears to reverse that stance—finding that the requirement and ability of a journalist to bring “intention, imagination, originality and talent” to their work is not “confined to national networks and major media markets.” This letter makes clear that any fact-specific inquiry must focus on the job duties of the individual employees, “not who employs them.” The more autonomy and creativity needed in a position, the more likely it will qualify for the creative professional exemption.
EMPLOYEE OR INDEPENDENT CONTRACTOR?
FLSA 2021-8: The DOL next issued an Opinion Letter addressing whether certain distributors of a manufacturer’s food products should be classified as employees or independent contractors under the FLSA. The DOL reiterated in this letter that the touchstone of the classification question has long been (and remains) “economic dependence,” which is determined by considering the following five factors:
- The nature and degree of control over the work;
- The worker’s opportunity for profit or loss based on initiative or investment;
- The amount of skill required for the work;
- The degree of permanence of the worker’s relationship with the potential employer; and
- Whether the work is part of an integrated unit of production.
While all five factors should be considered, the DOL reminds employers that the most important factors are the first two—the nature and degree of control and the opportunity for profit or loss. When both “core factors” point toward the same conclusion (i.e., employee or independent contractor), the DOL believes you have found your answer, and it is unlikely that the remaining three factors will affect the ultimate determination. A few notable points on those “core factors” reiterated in this letter include:
- Non-competition clauses indicate “control” and suggest that the individual is an employee, not an independent contractor;
- An independent contractor should be able to set his or her own schedule and refuse to attend meetings or participate in suggested marketing or promotions;
- An independent contractor gets to choose his or her own assignment and customers, even if they have been assigned a territory in which to operate; and
- A company should not be supervising the work of an independent contractor “in any consistent way.”
It does not turn an independent contractor into an employee. However, if a company “places some requirements” on the worker, such as “requiring particular insurance coverage that lists [the company] as an additional insured,” retaining inspection rights, or requiring that “particular health and safety standards” be met.
Evidence that there is an “opportunity for profit or loss” can be found where the worker gets to determine things like which and how many products to purchase, which customers to pursue (or not pursue), what prices to set, what equipment and operational space to use, and who (or what) to use to assist them in performing their work. If an individual’s income is determined solely by the number of hours or how fast the work is performed, this is not the type of “opportunity” that the DOL is looking for with an independent contractor.
A company should remember to look at these and other relevant factors every time they are considering classifying a worker as an independent contractor. One additional guidepost the DOL gives in this letter is to consider how closely the requirements the company is seeking to impose “are typical of contractual relationships between businesses (as opposed to employers and employees).”
FLSA 2021-9: The DOL’s final Opinion Letter of the Trump administration addressed: 1) whether requiring tractor-trailer truck drivers to implement safety measures required by law constitutes “control” by the motor carrier for purposes of classification under the FLSA, and 2) whether certain owner-operators are properly classified as independent contractors. The DOL concluded that 1) regulatory safety measures do not constitute “control” for purposes of determining independent contractor status, and 2) owner-operators are likely independent contractors.
In determining that contractual safety measures do not establish “control,” the DOL provided a welcome reminder that “insisting on adherence to certain rules to which the worker is already legally bound says nothing about whether the worker is an employee or an independent contractor.” Efforts by a company “to pursue safety measures and improve regulatory compliance” in response to “significant responsibility” imposed on a company by “Congress and federal regulators” do not, on their own, “suggest control indicative of employee status.”
As to the status of the truck owner-operators, the DOL (again) focused on the “core factors” of “control” and “opportunity for profit or loss” and found its second opportunity of the day to remind employers that when these two factors align, “the bulk of the analysis is complete.” Similar to the analysis done in FLSA 2021-8, in analyzing the “core factors,” the DOL looked at whether the individual gets to choose things like what freight they would haul, what routes they would take, and when they would perform the work. The DOL also examined how much “oversight” the company had over the work, whether the individual worker could choose not to do certain work, and (again) whether they were “free to provide services for competitors.” Also of note for many companies trying to decide whether an individual may properly be classified as an independent contractor is the DOL’s focus on the fact, in its analysis of the “opportunity for profit and loss,” that these individuals owned the equipment they used (here, vehicles) and were not reimbursed for “required expenses” incurred performing the work, such as fuel, fees, maintenance, repairs, etc.
These DOL Opinion Letters, released on the final full day of the Trump Administration, clear an easier path for certain employers to more liberally consider FLSA exemptions and independent contractor status for their workers. However, with the Biden administration now in office, it is an open question whether any of this employer-friendly advice will continue to be applicable for the foreseeable future. Additionally, employers would be well advised to remember that some state laws answer these questions differently and impose different requirements – so an employee who is exempt under federal law may not be under state law and, similarly, the question of whether a worker is an independent contractor should be carefully analyzed by applying a patchwork of laws – each of which has its own test—applicable to that question.