Labor Department Releases New Guidance Affecting Misclassification of Employees

Labor Department Wage and Hour Administrator Dr. David Weil released a new Administrator’s Interpretation 2016-1: Joint Employer under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

This interpretive guidance, with less significance than a regulation, has primary significance to the construction industry as a way to stem rampant misclassification of employees as independent contractors, an unfair competitive advantage that some non-signatory firms have over signatory employers. This guidance also affects only wage-and-hour compliance and is separate from the controversy surrounding the new National Labor Relations Board’s (NLRB) joint employer ruling that is roiling unorganized firms in the context of union organizing efforts. In either case, the NLRB or Labor Department’s single employer policies have very limited application to union-signatory Section 8(f) contractors or prime contractors in the ordinary course of construction industry construction prime contract and subcontract commercial contract performance. Following is an example from the DoL Guidance derived from the air conditioning service industry:

A mechanic is employed by Airy AC & Heating Company. The Company has a short-term contract to test and, if necessary, replace the HVAC systems at Condor Condos. The Company hired and pays the mechanic and directs the work, including setting the mechanic’s hours and timeline for completion of the project. For the duration of the project, the mechanic works at the Condos and checks in with the property manager there every morning, but the Company supervises his work. The Company provides the mechanic’s benefits, including workers’ compensation insurance. The Company also provides the mechanic with all the tools and materials needed to complete the project. The mechanic brings this equipment to the project site. These facts are not indicative of joint employment of the mechanic by the Condos.

Click on the link below for the entire DoL release. Within that material is an example of a DoL enforcement action against a drywall firm for misclassification in that industry. Some comments indicate that construction prime and subcontract commercial contracts can be revised to address or defend against adverse application of these rules in the commercial contracting business. An initial analysis of those comments shows that regulators (see example above) are focused on the workforce realities of worker conduct and supervision, and boilerplate contract or subcontract terms will not be an effective defense against an adverse determination finding on a factual application of the single employer rules in either a union election process or a wage-and-hour misclassification context.

DoL Release