Labor Department Revokes Expansive Definitions of ‘Employer’

Withdraws administrator’s interpretations that construed ‘joint employer’ broadly and ‘independent contractor’ narrowly

Allen Smith, J.D. By Allen Smith, J.D. June 8, 2017
Labor Department Revokes Expansive Definitions of ‘Employer’

​Secretary of Labor Alexander Acosta

The U.S. Department of Labor (DOL) has withdrawn two administrator's interpretations that had been issued under the Obama administration and had defined "employer" expansively and "independent contractor" narrowly.

Their withdrawal on June 7 "is a major development and employers across the country should be breathing a sigh of relief," said Allan Bloom, an attorney with Proskauer in New York City. However, "joint employer" still may be interpreted expansively by the National Labor Relations Board (NLRB).

Administrator's Interpretation (AI) No. 2015-1, adopted in 2015, defined "independent contractor" narrowly and AI No. 2016-1, adopted in 2016, interpreted "joint employer" broadly. "Since these AIs were published, only a handful of courts have adopted them as being the proper construction of the law," he said. "That has not stopped the plaintiffs' bar from trying to leverage the AIs as support for their cases, nor has it stopped the DOL from applying them in the course of its audits and investigations."

He noted, "These AIs will no longer serve as a basis for finding liability, and critically, they will not drive the DOL in its investigations going forward."

NLRB's Interpretation May Be Unchanged for Now

But he added that the remaining question is whether the withdrawal of AI-2016 will affect the decisions of the NLRB.

The NLRB defined "joint employer" broadly in its Browning Ferris Industries opinion, which is pending on appeal before the U.S. Circuit Court of Appeals for the District of Columbia and which Congress has tried to legislatively overturn. "Even if the court reverses, because the Obama appointee Richard Griffin remains the NLRB's general counsel, expect an appeal to the Supreme Court," said Steven Suflas, an attorney with Ballard Spahr in Denver and Cherry Hill, N.J. "And because vacancies remain unfilled at the NLRB, it may be years before Browning Ferris Industries is overruled, so employers will remain bound by the current law."

Following the withdrawal of AI-2016, Rep. Virginia Foxx, R-N.C., chairwoman of the House Committee on Education and the Workforce, and Rep. Bradley Byrne, R-Ala., chairman of the Subcommittee on Workforce Protections, released a joint statement saying, "Eliminating the job-crushing joint employer scheme in its entirety continues to be a leading priority for the committee, and we remain committed to getting the job done."

Withdrawn Guidances

Few workers could be properly treated as independent contractors under AI 2015-1, according to Robert Boonin, an attorney with Dykema in Detroit and Ann Arbor, Mich. The guidance deemphasized control as the deciding factor in judging whether someone was an employee or independent contractor, he noted. Instead, it focused on the economic realities test, which looks at whether the worker is economically dependent on the employer or in business for him- or herself. "The subjective nature of the DOL's interpretation and its narrow focus on 'economic dependence' create[d] substantial challenges for companies who wish to maintain their independent contractor relationships," said Matthew Disbrow, an attorney with Honigman in Detroit.

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As for AI-2016-1, the DOL "made it easier for employers doing business together to be deemed joint employers and thereby made it easier to hold one of the 'joint employers' liable for the wrongs solely made by the other 'joint employer,' " Boonin said.

AI-2016-1 provided a confusing definition of "horizontal" versus "vertical" joint employment, noted Ilyse Schuman, an attorney with Littler in Washington, D.C., and co-chair of its government relations branch, the Workplace Policy Institute.

"The concept regarding horizontal joint employment—that is, essentially, when related businesses share employees—did not significantly deviate from prior doctrine," Boonin said. "However, the concept of vertical joint employers dramatically altered the doctrine as typically applied by the courts up until that time."

Vertical joint employment existed, according to the guidance, when the employee has an employment relationship with one employer, such as a staffing agency, and the economic realities show that he or she is economically dependent on and thus also employed by another entity involved in the work. This test, ironically, focused on the control a prime contractor may assert over subcontractors, a franchisor may assert over franchisees and a business may assert over the employees supplied by staffing companies, he noted.

Measured Response

The withdrawal of the AIs, first, "sends a signal that the previous DOL overreached in these AIs by stretching the bounds of the law and that the current DOL is at least going to take some time to review and develop its policy position on these issues," said James Plunkett, senior government relations counsel with Ogletree Deakins in Washington, D.C. "Second, this is perhaps the first step in DOL's scrapping of the AI process in favor of the cooperative opinion letter process. Finally, from a political standpoint, the DOL may be looking at this withdrawal as handing a policy victory to the employer community."

But he added, "The continued validity of Browning Ferris Industries means that employers should remain vigilant with regard to potential joint employer issues, despite the withdrawal of the AI. The FLSA [Fair Labor Standards Act] always contemplated a broader joint employer interpretation than the NLRB did and that is still the law, even after withdrawal of the AI. Also, don't forget that unlike the NLRB, the DOL is not an adjudicatory body, and enterprising plaintiffs' attorneys are still free to try to convince judges to accept their theories on joint employer liability, particularly in circuits that have established broad joint employer tests under the FLSA."


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