Hunton Employment & Labor Perspectives

In its recently published Spring 2010 Regulatory Agenda, the Department of Labor (“DOL”) announced that it plans to propose a rule that would amend the current recordkeeping regulations under the Fair Labor Standards Act (“FLSA”).  Under the proposed rule, any employers seeking to exclude workers from the FLSA’s coverage will be required to perform a classification analysis, disclose that analysis to the worker, and retain that analysis to provide to Wage and Hour Division (“WHD”) enforcement personnel upon request.  The proposal will also address burdens of proof when employers fail to comply with records and notice requirements.

Although the proposed regulation is unlikely to be limited to independent contractor classifications, this all comes on the heels of renewed DOL efforts to crack down on the misclassification of employees as independent contractors.  During a Live Q&A Session to discuss the new Regulatory Agenda, Nancy Leppink, Deputy Administrator of WHD, was asked whether WHD is concerned that the implementation of rules tightening worker classification enforcement will upset the benefits associated with employing independent contractors.  Ms. Leppink responded by essentially parroting a DOL fact sheet on the proposal, which states that “updating the recordkeeping requirements to promote transparency is expected to encourage greater levels of compliance by employers, to enhance awareness among workers of their status as employees or independent contractors . . . and to facilitate DOL enforcement.”

Some of the issues that DOL will need to consider as it formulates the rule include:

• Whether any industries will be exempted from the classification analysis and enhanced recordkeeping requirements.
• Whether the classification analysis is to be conducted on a position-by-position or a worker-by-worker basis.
• The required content of analysis disclosures to workers and whether each worker will have to be formally notified of his or her FLSA status and how it was determined.
• What the proposed retention requirements for classification analysis will be in light of the Lilly Ledbetter Act.

If the proposed rule is implemented, employers will almost certainly be required to expend substantial amounts of time re-analyzing worker classifications and drafting new documents to comply, ultimately generating a significant amount of paperwork.  DOL plans to issue a formal Notice of Proposed Rulemaking for this rule in August, at which time employers will have an opportunity to submit comments on the proposed rule. Stay tuned for more information in August. In the meantime, employers should examine their current worker classifications to protect and prepare themselves.