One of the first acts of Alex Acosta after he was sworn in as Secretary of Labor was to withdraw the U.S. Department of Labor’s 2015 Administrative Interpretation on independent contractors. The 2015 Administrative Interpretation was issued by former Wage and Hour Administrator David Weil and was written to “help the regulated community ... curtail misclassification.” The 2015 Administrative Interpretation summarized the case law on independent contractors and the Fair Labor Standards Act by stating, “In sum, most workers are employees under the FLSA’s broad definitions.”
Although Secretary Acosta withdrew the 2015 Administrative Interpretation in June 2017, the DOL did not issue any further guidance on the independent contractor issue until July 13, 2018, when it issued Field Assistance Bulletin 2018-4, titled Determining Whether Nurse or Caregiver Registries Are Employers of the Caregiver. The 2018 Bulletin does two things for the regulated community. First, it provides employers with a view into what factors the DOL now deems important in determining whether a worker is an “employee” or an “independent contractor.” Second, it applies these factors to health care registries, an industry which has been at the forefront of this issue.
“Totality of the circumstances” approach
The 2018 Bulletin says that the Wage and Hour Division “will consider the totality of the circumstances to evaluate whether an employment relationship exists... Because the analysis does not depend on any single factor, and because caregiver registries operate in a variety of ways, [the Division] will evaluate all factors...to reach appropriate conclusions in each case.”
According to the 2018 Bulletin, “consistent with the WHD’s longstanding position, a registry that simply facilitates matches between clients and caregivers – even if the registry also provides other services, such as payroll services – is not an employer under the FLSA.”
In the registry and caregiver context, an employment determination “requires a thorough analysis of...business model[s] and operations,” the 2018 Bulletin says, and “no one factor is dispositive.”
Specific issues related to the health care registry industry
The 2018 Bulletin consists of two parts. Part I includes (1) the typical business model for home care registries, including the ways registries get paid for providing “matchmaking services”; (2) a reiteration that the test to determine whether an employment relationship exists under the FLSA depends on the “economic reality” of the circumstances and that no single factor can conclusively determine whether an employment relationship exists between a caregiver and a registry; and (3) existing guidance on home care registries that dates back more than 40 years.
Part II addresses common registry business practices “that WHD analyzes during investigations to determine whether an employment relationship exists.” The 2018 Bulletin notes that “it is not an exhaustive list; additional facts relating to the caregiver’s relationship with the registry may be relevant to the analysis.”
The following is taken from Part II of the 2018 Bulletin, with minor editing for brevity:
Conducting Background and Reference Checks: A registry’s performance of a background check to confirm a caregiver’s credentials and collect objective information, such as a caregiver’s criminal history and credit report, by itself does not indicate an employment relationship. However, a selection process that includes subjective criteria, such as interviewing a candidate to screen for a certain personality trait, may indicate an employment relationship.
Hiring and Firing: Generally, a registry does not exercise control over hiring and firing a caregiver; the registry informs its client that a potential caregiver meets the client’s parameters and preferences, and then the client may choose to hire the caregiver. Some registries may participate more actively in the hiring process or may fire caregivers who violate the law or industry standards. An active role in the hiring and firing process may indicate control over the process and suggest an employment relationship.
Scheduling and Assigning Work: While a registry often facilitates initial communications between a client and a caregiver, the subsequent conversations to structure the terms of the working relationship are independent of the registry, indicating that the registry is not an employer of the caregiver. A registry may play a more involved role in the process, offering specific work assignments to a subset of caregivers based on the registry’s discretion and judgment. This more involved role may indicate an employment relationship as the caregiver may economically depend on the registry’s subjective preferences and decisions.
Controlling the Caregiver’s Work: A registry does not exercise control over a caregiver by monitoring the caregiver’s work habits, providing training, or evaluating performance. Control over caregiving services (e.g., disciplining a caregiver for performance issues, prohibiting a caregiver from working directly with a client outside of the registry, setting policies requiring the caregiver to provide services in a particular manner, etc.) may indicate the existence of an employment relationship.
Setting the Pay Rate: A registry may provide advice concerning typical pay rates to serve as a benchmark during wage negotiations or may act as a liaison between a client and a caregiver during such negotiations, but the client and caregiver independently determine the caregiver’s rate of pay. If a registry designates a set wage range or offers tailored direction concerning what a caregiver should charge for specific services, an employment relationship may exist.
Receiving Continuous Payments for Caregiver Services: A registry may charge a client a one-time, upfront fee for the service of matching the client and a caregiver. It may also charge fees for administrative functions, such as processing payroll or producing tax documents. Such charges do not indicate that a registry is a caregiver’s employer. However, if the caregiver’s pay depends in part on the amount the registry charges, such charges may indicate that the registry is the caregiver’s employer.
Paying Wages: A registry may perform payroll functions on behalf of a client without becoming an employer of the caregiver. However, a registry’s direct payment of its own funds to a caregiver may indicate an employment relationship, even if the client reimburses the registry.
Tracking Caregiver Hours: A registry may collect time sheets from caregivers or offer an electronic time verification system without suggesting an employment relationship. However, a registry’s active creation and verification of a caregiver’s time records may indicate an employment relationship.
Purchasing Equipment and Supplies: A registry’s operational expenses (e.g., investments in office space, payroll software, timekeeping systems, etc.) do not indicate an employment relationship. Similarly, a registry may provide caregivers the option to purchase discounted equipment or supplies without indicating an employment relationship. Contrarily, a registry making an investment in a caregiver’s training, licensure, insurance, or other tools necessary for the caregiver to perform the job may indicate an employment relationship.
Receiving EINs or 1099s: The fact that a registry requires an Employer Identification Number issued by the Internal Revenue Service or distributes an IRS 1099 form to a caregiver is immaterial in ascertaining whether the registry is an employer of the caregiver under the FLSA.
The 2018 Bulletin, although addressing the relationship between registries and caregivers, appears to indicate that the DOL is returning to a “totality of the circumstances” standard and will consider “all factors” in reaching an appropriate conclusion. Thus, the 2018 Bulletin provides a useful general framework for any company seeking to maintain an independent contractor relationship with its workers.