Labor Department Overturns Obama-era Joint Employer, Misclassification Guidance

In a victory for NAHB members and the small business community, Secretary of Labor Alexander Acosta on June 7 announced the withdrawal of the Department of Labor’s (DOL) 2015 and 2016 informal guidance on independent contractors and joint employment — two Obama-era documents that expanded the tests for what constitutes a joint employer and an independent contractor, respectively.

The 2016 guidance document arguably signaled DOL’s intent to increase aggressive enforcement of joint employment status in its investigations, and NAHB is pleased that DOL is rescinding it.

Likewise, NAHB commends the agency because it placed undue burdens on our members to show that the subcontractors they hire are independent contractors and not employees.

As previously reported in 2015, DOL issued administrative guidance on the application of standards for who is an employee under the Fair Labor Standards Act (FLSA). The guidance document represented a fundamental shift by DOL away from the established common law control test (based on the control an employer exercises over how, when, where, and by whom work is performed) in favor of economic realities factors (based on the nature and profitability of the work performed and how integral it is to the business) in determining whether a worker is truly an independent contractor rather than an employee.

The administrator’s interpretation concluded that most workers are employees under the FLSA’s broad definition of “employ.” NAHB was concerned that it was too broad and failed to accurately reflect how builders have historically used subcontractors in the construction industry.

The 2016 guidance on joint employment that the agency is withdrawing was necessary, DOL said, because as a result of continual changes in the structure of workplaces, the possibility that a worker is jointly employed by two or more employers has become more common in recent years and the traditional employment relationship of one employer employing one employee is less prevalent.

DOL specifically cited the construction industry, among others, as one where its Wage and Hour Division encountered this employment scenario.

This guidance came on the heels of an August 2015 decision by the National Labor Relations Board (NLRB) that changed the well-established standard for determining whether two separate and independent companies are joint employers under the National Labor Relations Act.

In that case, Browning–Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, the NLRB applied a new standard that eliminated the requirement that the employer actually exercise the authority to control.

According to the NLRB, the right to control or co-determine the essential terms of an employee’s employment will be considered in determining joint-employer status.  As a result, direct, indirect (e.g., through an intermediary), and potential control over working conditions are all relevant to the joint-employer inquiry.

Essentially, a company is a joint employer if it has the potential right to control, including hiring and firing, discipline, supervision, scheduling, seniority and overtime, and assigning work and determining the means and methods of performance. This opens up builders and their contractors to increased liability in organizing, secondary boycotts and unfair labor practices.

In 2016 Browning Ferris challenged the NLRB’s decision and NAHB and coalition partners filed an amicus brief in support of Browning Ferris.

For more information, contact Alexis Moch at 800-368-5242 x8407 or David Jaffe at x8317.

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Comments (1)

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  1. Thank the NAHB for their hard work! I was scrutinized and audited regarding the Worker Classification Act! They came in and audited my books and found a few small infractions but made my life miserable for 2 months by having to go thru all my files for a period of 4 years to prove that my sub-contractors were truly sub-contractors. I was threatened with heavy fines and tried to bribe me into paying $50,000.00 fine for them to walk away to avoid what they assumed was a $100,000.00 plus fine!
    I have been a member for over 25 years and a past president of my local chapter!

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