Trump’s Labor Department Rescinds Guidance Letters on Employee Misclassification and Joint Employment

In a Trump administration that typically acts with great fanfare, Secretary of Labor Alexander Acosta quietly announced the immediate withdrawal of two administrative guidance letters issued during the Obama administration. The U.S. Department of Labor (“DOL”) issued a three-sentence news release on Wednesday, reporting that Secretary Acosta had withdrawn the 2015 administrative guidance about the misclassification of independent contractors and the 2016 administrative guidance about joint employment. Both guidance letters were criticized by business industry trade groups as burdensome and unnecessarily restrictive to employer flexibility, while simultaneously being praised by workers’ rights groups as necessary to protect workers (particularly low-wage workers).

What Happened?

In 2015 and 2016, Obama’s Labor Department took an expansive view of what it meant to be an employee and what it meant to be a joint employer.

In the 2015 independent contractor guidance (No. FLSA 2015-1, subtitled “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors”), the DOL offered a six-factor “economic realities test” to determine whether a worker was an employee or an independent contractor, and posited that most workers are employees.

We previously discussed the 2016 joint employment guidance (No. FLSA 2016-1, subtitled “Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act”). In it, the DOL defined two types of joint employment—vertical (occurring when one company contracts for workers directly employed by an “intermediary” company supplying their labor, such as a staffing agency) and horizontal (occurring when two companies separately employ a worker but the companies have a sufficiently close relationship with respect to the employee’s work) and generally put companies engaged in multi-company arrangements on notice that the DOL intended to hold as many of them as possible responsible for alleged wage and hour violations under the Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MWPA”).

The DOL’s announcement on Wednesday effectively means that neither guidance exists insofar as neither may be relied upon as an indicator of the DOL’s interpretation of the laws they discuss (they also no longer appear on the DOL’s web site). The laws discussed, of course, still remain. The DOL’s news release makes clear that the removal of the guidance letters does not change employers’ legal responsibilities under the FLSA or the MWPA as reflected in the DOL’s regulations and the case law interpreting the statutes and regulations.

What Does It Mean?

While the news has been met with great fanfare and cheers from business groups, employers may want to temper their excitement, at least initially.

Administrative guidance letters do not have the force of law, and the removal of these guidance letters does nothing to change existing court decisions that may have interpreted the FLSA or the MWPA similarly.

Employers also still must contend with the National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., which refined the standard for determining joint-employer status under the National Labor Relations Act. The Board determined that a company and its contractor could be seen as joint employers even if the company only indirectly controls  workers or has the authority to do so (even if that authority is not exercised). The decision remains on appeal. Significantly, it (unlike the guidance letters) carries legal weight, because courts must defer to the decision if the Board issued a reasonable interpretation of law. Many expect that the decision ultimately will be reversed by the Board itself after President Trump fills its two vacant seats.

That said, employers likely should view today’s announcement as a positive one. It may signal that President Trump’s Labor Department will be less likely to crack down on employers who misclassify their workers or aggressively investigate wage and hour violations resulting from joint employment arrangements. President Trump certainly made reducing burdens on employers a key point on the campaign trail. The withdrawal of these guidance letters may be one of many pro-employer steps the DOL takes over the next several years. Conn Kavanaugh will monitor and report about these developments.

If you have any questions about employee misclassification, independent contractors, or joint employment, please contact one of Conn Kavanaugh’s employment lawyers for assistance.


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