Brokers and lawyers in the EPLI space have been rapidly regrouping around new guidelines issued earlier this month by the US Dept. of Labor that effectively extend employee status to many more workers.
“At the end of the day, the guidelines seem to make it even more clear that the DOL simply expects that most independent contractors are really employees under the definitions of the Fair Labor Standards Act,” said Thomas Hams, managing director and national EPLI practice leader at Aon Risk Services Central.
The guidance reasserted the priority of the “multifactorial economic realities test” in determining whether workers are dependent on their employers and are therefore employees, or are in business for themselves and therefore independent contractors.
The labor law’s definition of employ as “to suffer or permit to work” and the later-developed economic realities test provide “a broader scope of employment than the common law control test,” the DOL said, which focuses on the degree of direct supervision exercised over the worker.
This narrower control test had been gaining traction among companies in the technology-based “sharing economy,” where people often work remotely. In a sign of concern about these workers, the DOL said on July 27 that it was hosting a discussion on Facebook about misclassification and “what it means for our 21st century economy.”
Asserting the superiority of the economic dependence standard means workers will be classified as employees “practically all the time,” said Monique Olivier, partner at Duckworth Peters Lebowitz Olivier in San Francisco.
Its multiple factors may make the test seem “nebulous, but it gives employers more of a sense of what they should be considering when trying to classify their workers,” she told Advisen.
The DOL’s guidance or administrative interpretation will also be used by courts to settle ambiguities in classification cases.
Factors to be considered include the degree of a worker’s investment in a business and how integral his or her job is to it, as well as employer control, making misclassification less likely. More will be swept under the legal protections afforded employees, including minimum wage, overtime compensation, unemployment insurance and workers compensation.
The number of so-called freelance workers—independent contractors, “moonlighters,” temporary workers, freelance business owners or some combination of these—stands at 53 million, or 1 in 3 workers, according to a survey last year of 5,052 adults in the US by research firm Edelman Berland.
Independent contractors account for 40 percent of this group, the new survey said. And while the DOL’s Bureau of Labor Statistics and the IRS didn’t supply data in response to requests from Advisen, the number of those who primarily work independently has increased 14.4 percent, to 10.6 million, since 2001, according to Economic Modeling Specialists International, a unit of Career Builder.
EMSI noted, however, that their number has contracted by 5 percent since 2009, while jobs for salaried employees in traditional settings have risen 4 percent.
Another group of concern to the DOL is lower-skilled, undocumented workers, who are more vulnerable to misclassification by employers, Olivier said.
Her practice, like others, has seen an escalation in cases of workers whose duties remained the same but who were suddenly told by their bosses that they were independent contractors.
The brokers’ role in the application of the new guidelines is to educate clients on potential liabilities around worker classification and recommend appropriate coverage, Hams told Advisen.
“Decisions around the use of independent contractors are traditionally so far outside of risk managements sphere of influence that they may have little or no idea of whether they even have a large independent contractor workforce,” he said in emailed comments.
“Step one is simply to make sure they are aware of the issue, its ramifications and, if need be, point them in the right direction of qualified employment counsel that can help them assess their exposure to the issue,” Hams said.
Step two is to make sure that insurance policies are properly structured to cover a claim by an independent contractor that they are an employee.
“In my world, that means making sure a client’s EPLI policy has a broad enough definition of Employee to expressly provide full coverage for a claim brought by an independent contractor,” but not so broad as to insure an independent contractor if they are a defendant in an employment case—unless that’s what the client wants, Hams said.
“In other words, if the independent contractor is actually the one suing the company, the client will always want that suit covered under the policy, but if the independent contractor is getting sued, the company may have no interest in protecting that individual,” he said.
“Often the same definition is used for both purposes in an EPLI policy, so it has to be carefully delineated,” Hams told Advisen.
He added that the misclassification issue also affects a company’s wage and hour exposure “because an employee allegedly misclassified as an independent contractor raises numerous potential violations of the FLSA that create yet another reason why clients need to take a hard look at obtaining the relatively new wage and hour coverage.”
