New DOL Opinion Seeks to Classify Most Independent Contractors as Employees

Less than two weeks after the U.S. Department of Labor (DOL) moved to expand the availability of overtime pay, the DOL has taken another action that is concerning to independent insurance agencies and their business clients.

This month, the DOL's Wage and Hour Division issued a so-called Administrator's Interpretation (AI) whereby the DOL shows its hostility toward the use of independent contractors except in the most limited circumstances.

According to the AI, most workers qualify as employees under the federal Fair Labor Standards Act and cannot be classified as independent contractors—even when those workers agree to the independent contractor designation, receive 1099s and exercise substantial control over their work. The AI states that if a person’s work is integral to the business, the worker is most likely an employee.

Unlike the proposed overtime pay regulations, which are currently in the notice-and-comment period, the DOL's use of an AI circumvents the notice-and-comment period, which would invite input from those affected by the AI. This creates uncertainty around the impact of the AI going forward. At a minimum, the analysis in the AI will guide DOL enforcement actions against any business the DOL deems to be misclassifying employees as independent contractors. The courts will determine the AI's ultimate impact, likely in a lawsuit filed by a business pursued by the DOL for alleged misclassification.

If the courts sustain the AI's interpretation, the businesses that are determined to have misclassified their workers may face wide-ranging liability, including under federal and state tax laws, the Family and Medical Leave Act, the Affordable Care Act and ERISA. Independent agencies should therefore take a close look at any independent contractors they use, and decide whether these workers may be considered employees under the newly released DOL classification standards.

Check this week's issue of News & Views for further analysis of the AI and its potential effects on independent insurance agencies.

Scott Kneeland is Big “I” general counsel. Joseph Doherty is Big “I” senior counsel.