Tag Archives: Economic Realities Test

07.21.25
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Just Like the Dress: Why Balancing Tests for Worker Classification Can Be So Unpredictable

Remember the dress that broke the internet?

In 2015, this image was widely circulated on Facebook, with some people seeing the dress as white and gold, others seeing it as blue and black. Whichever camp you are in, you probably cannot understand how anyone could possibly think the dress is the other set of colors.

You can read more here if you want a refresher. But essentially it all comes down to neuroscience and differences in how people perceive color.

The core takeaway, though, was that two people could view the same object and reach opposite conclusions.

And so it goes with independent contractor misclassification disputes. A recent Fourth Circuit decision highlights the problem with the tools we use to assess whether a worker is properly classified. When a balancing test is used, different fact-finders can view the same evidence and reach opposite conclusions. And that’s exactly what happened here.

The case, Chavez-DeRemer vs. Medical Staffing of America d/b/a Steadfast, involved a staffing firm that provided independent contractor nurses to hospitals and medical clinics, as needed. The DOL launched an investigation in 2018, alleging that 1,100 nurses should have been classified by Steadfast as its employees under the Fair Labor Standards Act (FLSA). The DOL filed a lawsuit in federal court in Norfolk. After a bench trial, the judge ruled that under the FLSA’s six-factor Economic Realities Test, the nurses were employees. The judge awarded more than $9 million in damages.

Steadfast appealed. Last week, in a 2-1 decision, the Fourth Circuit affirmed. Two judges agreed with the trial court, finding that the evidence supported employee status under the Economic Realities Test.

The dissenting judge disagreed vehemently. As in, how-can-you-possibly-think-the-dress-is-blue-and-black vehemently. The dissenting judge excoriated the majority for cherry-picking facts and ignoring the realities of the relationship.

All three judges, of course, were evaluating the same facts and the same record. All three judges were applying the same six-factor Economic Realities Test. Yet, they reached very different conclusions.

If this is depressing, it should be. It shows how unpredictable balancing tests can be.

The outcome is an important reminder of how important it is, when building independent contractor relationships, to consider every relevant factor and to nudge as many factors as possible to the independent contractor side of the scale.

There is no way to predict which facts a judge will find most persuasive and no way to predict how a judge will weigh the factors, especially since it is pretty much inevitable that there will be at least some factions on each side of the scale.

I see the dress as white and gold. I can’t understand how anyone would think it’s black and blue. Those people are insane.

Actually they’re not insane. (Well maybe they’re insane.)

In the Medical Staffing case, the dissenting judge couldn’t see how the other two judges could have possibly reached the conclusion that the nurses were misclassified. Businesses using independent contractor models need to be prepared that no matter how supportable they think their classification decision is, a judge or agency might reach the opposite conclusion, even from the same facts.

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© 2025 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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05.06.25
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DOL Softens Its Bite on Independent Contractor Rule

This is Louie. He’s 11 weeks old. He has the teeth of a shark. If you play with him and there’s no toy in his mouth, your arm is the toy. Or your foot. Or sometimes your face. In my house, we all look like we just played with a blender. But he’s awfully cute.

Late last week, the Department of Labor (DOL) made some news that won’t bite companies in the face.

Read more here.

Originally published 5/5/25 as a BakerHostetler alert.

02.24.25
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Toast! Trump DOL Signals an End to the 2024 Biden Independent Contractor Rule

This Thursday, Feb 27 marks National Toast Day, an important annual celebration that commemorates this versatile form of bread. Toast for breakfast? Toast for brunch? Snack? PB&J? Is there anything toast can’t do?

National Toast Day is celebrated on the last Thursday of February each year, which means that this year it overlaps with National Polar Bear Day, National Strawberry Day, and National Kahlua Day.

Put all those things together and you’ve got one helluva picnic.

But why do I mention toast? Because of independent contractor classification tests, of course. Here’s what I mean.

Remember the 2024 DOL independent contractor rule — you know, the one that the Biden DOL passed in January 2024? We hardly had a chance to get acquainted.

I’ll tell you something that won’t surprise you. The Trump Administration is likely going to rescind it. Or maybe ignore it. Or maybe allow a court to reject it. One way or another, it’s gonna be toast.

There are several lawsuits challenging the 2024 rule, and one of them — Frisard’s Transportation v. US DOL — was scheduled for oral argument at the Fifth Circuit Court of Appeals in early February.

The DOL, however, asked the court to postpone oral argument to allow it time to consider how it wants to proceed. How it wanted to proceed under Biden was to defend the rule. Now, not so much.

However the case proceeds, we can expect that the Trump DOL will not apply the Biden Administration’s independent contractor test.

So what does that mean for the independent contractor test?

In reality, not much.

That’s because, first, the rule applied only to the Fair Labor Standards Act (FLSA), which is the federal wage and hour statute. It didn’t apply to tax law, benefits law, labor law, unemployment or workers’ comp law, or any state law.

And second, the test for who is an employee under the FLSA has always been an Economic Realities Test, and courts know what that test is. Every circuit court has a long line of case law describing the Economic Realities test. The courts don’t need the Biden or Trump Administration to tell them how to interpret the FLSA. The FLSA has been on the book since the 1930s, back when Biden and Trump were mere teenagers.

So what does this mean for employers? Again, not much. Employers should assume that under federal wage and hour law, the test for whether someone is an employee or independent contractor is the same as it has been for decades.

This anticipated change is not really going to change anything at all.

Now, if instead of toast, the Trump Administration made the rule into Kahlua, that would seem to be worth celebrating.

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© 2025 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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01.22.24
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Face It: The New DOL Independent Contractor Rule Faces Court Challenges

“Faces” is a useful word.

It can mean the front part of the head, as in this selfie featuring two hairy-faced beasts. The one on the left has a wet drippy beard after sloppily drinking water from a bowl. No, I meant on your left.

It can mean the English rock band formed in 1969, which featured Rod Stewart and Ronnie Wood. Their 1971 album, A Nod Is As Good As a Wink… to a Blind Horse, reached #2 in the UK charts.

Or it can be a verb, as in “DOL Independent Contractor Test Faces Court Challenges.” In today’s post, we’re going with verb.

As expected, the independent contractor rule released by the DOL earlier this month is already being challenged in court.

A coalition of business groups is trying to invalidate the rule by asking the Fifth Circuit to reopen an earlier case. In the earlier case, these groups challenged the Biden DOL’s effort to withdraw the Trump DOL’s 2021 version of the independent contractor rule. The 2021 version would have simplified the test, focusing the analysis on two key factors — control and opportunity for profit or loss. In the lawsuit, the business groups argued that the Biden DOL’s efforts to delay and withdraw the Trump DOL’s 2021 rule violated the Administrative Procedure Act (APA).

These groups now argue that the new rule contains the same legal flaws and that that the Trump DOL rule should be the rule that rules. The case is Coalition for Workforce Innovation v. Su, 5th Cir., No. 22-40316.

A second challenge has been filed by freelancer writers and editors who argue that the new rule is impermissibly vague and “freewheeling” (an excellent word choice) and that it violates the APA. They claim that the new rule impermissibly threatens their ability to work as independent contractors and is too vague to allow them to reasonably structure their businesses.

These challenges will take a while to resolve, and more may be filed. Unless a court issues an injunction staying the rule while these cases proceed, the new rule will take effect March 11th.

In the meantime, we’ll keep watching to see what happens. It’s a real face off!

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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09.05.23
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Going to Rehab? Patients Can Still Be Employees, Says Court

Driving back from Ann Arbor after dropping off my youngest daughter at college, I decided it would be a good time to catch up on some albums I hadn’t heard in a while. Soon I settled on Amy Winehouse’s Back to Black, which was her second and final album, released in 2006. The article liked here describes the conversation with her father that led to the song.

If Amy had gone to rehab, it’s fair to assume she would not have expected to be considered an employee of the rehab center where she was being treated. That was probably the expectation of a number of rehab patients at a Texas facility too, but a court ruling last month found otherwise.

It’s true, the situation in this case was a bit unusual, but it still involves rehab patients being deemed employees of their rehab enter. Here’s how it went down.

The patients, as part of their treatment, were required to undergo vocational, on-the-job training at third parties, where they worked regular shifts. The third parties would pay the rehab center, and the fees were used to offset operating costs. The patients signed agreements that they did not expect compensation for their work.

The rehab center, though, essentially functioned as a staffing agency. It charged the third parties for the patients’ time, even charging time-and-a-half when they worked overtime hours. The patients saw none of that cash, and some of them sued.

A district court in Texas applied the economic realities test and found the patients to be acting as employees of the rehab center / staffing agency when it performed the offsite work. After discovery, the court certified a collective action under the FLSA, and the case is ongoing.

An interlocutory appeal to the Fifth Circuit Court of Appeals failed, with the appeals court holding that the district court applied the right test for determining whether the patients could have been employees.

This case, while still underway, is a good reminder that employment relationships can be created in unexpected ways. This time it was the rehab center that tried to say, no no no.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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06.26.23
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What if Everything You Knew…? DOL Targets Fall 2023 for New Independent Contractor Test

In school we all learned that the longest river is the Nile. But some say the Amazon is longer. In the atlas “Maps of Useful Knowledge” (1846), the Amazon was listed as 3200 miles and the Nile 2750 miles. The current U.S. Geological Survey shows the Nile at 4132 miles and the Amazon at 4000 miles. Brazilian researchers claim the Amazon is 4331 miles long and the Nile a mere 4258 miles.

So which is it, and how can it be changing? Apparently the controversy involves disputes over where the rivers start, where they end, and how to track changes in the rivers’ course.

Whatever you learned about the test for who is an independent contractor under the Fair Labor Standards Act is subject to change too.

Remember October 2022? Elon Musk completed a $44B deal to take over twitter. Germany took steps to legalize marijuana. And the DOL released a proposed new regulation to modify the independent contractor test.

The proposed rule received more than 50,000 comments. We’ve been speculating about when the DOL might issue a final rule.

We’ve now learned that the DOL is targeting this fall for release of the new rule. The latest version of the regulatory agenda lists August as the target release date. August may be a bit ambitious, but the fall seems likely. On June 9, a federal court of appeals granted a motion by the DOL for a 120-day stay in a pending lawsuit. The DOL asked for the stay to allow it time to release the new rule.

You can read more about the proposed rule here.

So it seems that whatever we know now about the length of the Nile River, the length of the Amazon River, and the independent comntractor test under the FLSA is subject to change. Hopefully we’ll know more about all three by sometime this fall.

We can be pretty sure the final rule will closely resemble the multi-factor balancing test released in October 2022. Businesses can plan accordingly by being proactive in assessing their relationships with independent contractors and taking steps to reduce risk now.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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06.20.22
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Inedible Food: DOL Starts New Rulemaking Process to Toughen FLSA Independent Contractor Test

I saw this truck while driving home last week from my daughter’s college graduation. Now I’m no livestock dietician (I failed that course in law school), but this seems like the worst possible thing to feed your animals.

Whoever’s behind the labeling also needs some help with marketing. I know I wouldn’t buy that.

I’m also not buying the DOL’s recent announcement that it’s holding two public forums to help it decide what to do about a new independent contractor misclassification test. I think we all know what the DOL is going to do already.

The DOL will hold an Employer Forum on June 24, then a Worker Forum on June 29. Anyone can attend. RSVP links are here (6/24) and here (6/29).

After this charade open-minded exchange of viewpoints, the DOL will get to work preparing a new rule for determining who is an employee under the Fair Labor Standards Act (FLSA). The current regulation, issued by the Trump DOL, refocuses the traditional Economic Realities Test inquiry on two core factors: (1) the nature and degree of the individual’s control over the work, and (2) the individual’s opportunity for profit or loss. The Biden DOL tried (unsuccessfully) to prevent the Trump rule from going into effect, but a federal court ruled that the Biden DOL’s attempt to dismantle the rule was flawed, and the Trump rule therefore went into effect.

Now, let’s not kid ourselves. Just because a court told the Biden DOL that it’s stuck with this Trump-made rule doesn’t mean anyone at the DOL is actually applying it. The Biden DOL has said it plans to rewrite the rule, pronto. The new rule will make it harder to classify workers as independent contractors under the FLSA. We already know that’s going to happen, even if we don’t know the precise language to be used.

In late 2022, the DOL will issue its new rule, which will be like the old rule that we had before the Trump DOL’s new rule. Meet the new boss, same as the old boss. And with each new administration, it will become harder then easier then harder to be classified as a contractor under the FLSA.

So I will not be wasting my time listening in on these forums. I expect they’ll be as useful as inedible food. Which cannot be good for the GI tract.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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01.31.22
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That’ll Cost You 96 Camels: Court Headlocks Staffing Agency with $7.2M Misclassification Judgment

Mom feeding a non-wrestling camel, May 2010

If you weren’t in Turkey last month, you missed the annual Selçuk Efes Camel Wrestling Festival, which featured 162 competitors in four categories.

The camels are paired by weight and skill, and their techniques include tripping their opponents with foot tricks or applying headlocks then sitting on their opponents. Some just push until the other camel gives up. A winner is declared when one camel scares away the other, making him scream or collapse. The camels are muzzled so there is no biting.

Among those missing the spectacle were the owners of Steadfast Medical Staffing, a Virginia-based firm that maintains a database of nurses and pairs them with healthcare facilities. That’s because they were in federal court, defending against a lawsuit by the Department of Labor. The DOL alleged that they had misclassified the nurses as independent contractors in violation of the Fair Labor Standards Act (FLSA).

After a bench trial, the judge agreed with the DOL and ruled that the nurses — which included CNAs, LPNs and RNs — were employees of the staffing agency. The Court applied the Economic Realities Test, which is the proper test for determining who is an employee under the FLSA.

The Court considered all relevant factors, then applied camel-style headlocks while sitting on the defendant, causing the staffing agency to either scream or collapse (unclear from the opinion). The Court ruled that the staffing agency failed to pay overtime and failed to comply with FLSA record keeping requirements. The agency will be liable for approximately $3.6M in back wages plus another $3.6M in liquidated damages.

Following the judgment, the DOL issued a statement with quotes from the Secretary of Labor, Marty Walsh, and the Solicitor of Labor, Seema Nanda, that the DOL was sending an “unequivocal message” to Steadfast and other staffing companies that the DOL is serious about pursing independent contractor misclassification.

Staffing agencies that treat workers as independent contractors are on notice that the DOL is serious about enforcement. Remember, the facts of the relationship determine whether a worker is an employee or an independent contractor, not how the parties choose to characterize the relationship.

More than 1,100 nurses will share in the award, with a healthy-but-to-be-determined amount of fees headed to the plaintiffs’ lawyers.

A prized wrestling camel can be sold for more than a million Turkish lira. That’s about $75,000. Large awards like this for systemic misclassification are not surprising. This one will cost the staffing firm about 96 wrestling camels.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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11.15.21
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He-Gassen! This Telecom Company Should Have Smelled a Misclassification Claim Coming

Fire away! Source: Waseda U. Library

The Waseda University Library in Tokyo maintains an online archive of drawings dedicated to epic Japanese fart battles of the 17th and 18th centuries. The depictions, called he-gassen (really!), show farts so powerful they penetrate walls and blow cats out of trees.

This mode of attack must have been intimidating, but approaching enemies should have smelled what was coming and taken evasive action.

The same can be said for a Nevada telecommunications company, which had engaged 1,400 call center workers but treated them all as independent contractors. In the immortal words of Daryl Hall, no can do.

Under federal wage and hour law, the Economic Realities Test is used to determine whether a worker is an employees, regardless of what the parties call the relationship. In this case, the telecom company failed virtually every part of the test. The workers were economically reliant on the telecom company, which controlled their work in just about every relevant way, making the workers employees.

The facts were so bad that the Department of Labor took the laboring oar on this one, filing its own lawsuit in federal court. The DOL won a $1.4 million award, and the Ninth Circuit Court of Appeals upheld the decision.

Remember, a worker’s status as an employee or independent contractor is determined using the legal test and the facts of the relationship, regardless of what the parties call themselves.

The moral of the story is that if it smells like an employment relationship, it probably is. Choose your battles wisely. He-gassen!

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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07.29.21
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Welcome to Turkmenistan: Joint Employment Rules Rescinded, Leaving Massive Crater in FLSA Regulations

Tormod Sandtorv – Flickr: Darvasa gas crater panorama CC BY-SA 2.0

No visit to Turkmenistan would be complete without a visit to the Darvaza Crater, more commonly known as the Door to Hell. This massive crater formed decades ago after a Soviet drilling rig collapsed. Roughly 40 years ago, the Soviets lit the crater on fire to burn off the methane. But Turkmenistan has some of the largest gas reserves in the world, which meant you couldn’t just make the gas go away.

The fire still burns today, and the massive fiery hole is an impressive sight.

A massive hole can also describe what the Wage and Hour Division (“WHD”) just created.

On July 29, the WHD formally announced the rescission of all of the regulations that define when joint employment exists under the Fair Labor Standards Act (“FLSA”).

The regulations, which can be found in Part 791 of 29 C.F.R., have existed in some form since 1958, which is right around the tenth anniversary of a magnitude 7.3 earthquake that killed up to 10% of the entire population of Turkmenistan.

In 2020, the Trump Administration revised the regulations to provide more clarity about who is a joint employer and when. The 2020 regulations listed specific factors that should be applied. The new rule sought to create consistency in place of the patchwork of different factors used by different courts in different circuits. The 2020 regulations also included 11 helpful illustrations of how the new rules would be applied in various situations.

Pro-business groups liked the new rule because it provided clarity and made it harder to be a joint employer. Pro-employee groups hated the rule because it provided clarity and made it harder to be a joint employer.

In March 2021, the Biden Administration announced an intent to rescind the 2020 regulations. On July 29, the rescission was formally announced. The rescission takes effect September 28, 2021.

In the formal rescission notice, the WHD notes that few courts had followed the new test and that a federal district court in New York had ruled that the 2020 regulations were invalid. (That case is now on appeal to the Second Circuit.)

What does the rescission mean?

Welcome to Turkmenistan! The rescission doesn’t reinstitute the 1958 regulations. It doesn’t provide new regulations. Instead, it strikes all of Part 791 and leaves an empty hole.

The new guidance is that there is no guidance.

No kidding. Here’s what the notice says:

Effect of Rescission

Because this final rule adopts and finalizes the rescission of the Joint Employer Rule, part 791 is removed in its entirety and reserved. As stated in the NPRM, the Department will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or subregulatory guidance is appropriate.

The WHD notice reminds us that courts have set forth their own tests, and those tests can be followed.

So where does that leave us? What’s the rule? Well, it depends where you live. Really! Different courts apply different tests. But for the most part, they are similar.

In general, there are two types of joint employment – vertical and horizontal.

Vertical joint employment is when one employer, such as a staffing agency, provides workers for the benefit of a second entity. Joint employment under the FLSA means that both entities are legally responsible for ensuring that the workers are properly paid a minimum wage and overtime. Both are also jointly liable for any FLSA violations, even though the staffing agency likely has full control over payroll. 

Based on court decisions, vertical joint employment will follow an Economic Realities Test, and joint employment will exist when “the economic realities show that the employee is economically dependent on, and thus employed by the other employer.” Multiple factors go into this analysis. These typically include:

  • Right to direct, control and supervise work;
  • Right to control employment conditions;
  • Permanency and duration of relationship;
  • Repetitive or rote nature of the work;
  • Whether the work is integral to the business;
  • Whether the work is performed on premises; and
  • Which entity performs the administrative functions characteristic of an employer (payroll, workers compensation, etc.)

Different courts articulate the test in different ways, but that’s a reasonable summary of the factors most commonly applied.

Any new interpretive guidance from the Biden WHD is almost certainly going to be that joint employment should be widespread and easy to establish. 

Horizontal joint employment is when two businesses under common control employ the same individual. This issue arises when a worker spends 30 hours at Business 1 and 30 hours at Business 2. If the businesses are joint employers, then the worker is entitled to 20 hours of overtime for the combined 60 hours of work.

The 2020 regulations did not materially change the test for horizontal joint employment. The 1958 version of the regulations looked at whether the two entities were “completely disassociated” from each other. Courts typically look at common control and common management as evidence of horizontal joint employment. That is not likely to change, but that regulation’s gone too.

Will There Be New Regulations?

Maybe. It seems more likely to me that we’ll see a re-issuance of the 2016 Administrator’s Interpretation on Joint Employment. The 2016 AI adopted an expansive view of joint employment, finding that it’s fairly easy to establish. The 2016 AI was issued by David Weil, who ran the WHD under Obama.  President Biden has nominated Weil to head the WHD in the current administration, so it would not be a surprise to see the 2016 AI or something similar re-issued.

Businesses should expect an expansive definition of joint employment, with little guidance or help from the WHD. With all regulations gone, and with different courts applying different tests, the landscape on joint employment resembles a massive crater filled with burning methane. It’s not a hospitable climate.

What Should Businesses Do?

Businesses should review their arrangements with vendors who provide labor and revisit those contracts and relationships. Steps can be taken to provide contractual protection against joint employment, even where the law will find a joint employment relationship.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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