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Commentary: Labor Department Continues Its Focus on Construction Industry

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The U.S. Dept. of Labor historically has expressed concern that the construction industry has low compliance rates with federal minimum wage and overtime requirements, as well as employee misclassification issues.  On multiple occasions over the years, it has launched compliance and enforcement initiatives directly or indirectly aimed at the construction industry.

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Construction employers can expect those efforts to continue into the future.  In its 2011-2016 Strategic Plan, the DOL reiterated its emphasis on so-called “fissured” industries, i.e., industries using business arrangements that, in the DOL’s view, cloud the realities of the employment relationship in order to dilute responsibility for Fair Labor Standards Act compliance, including the construction industry.

More recently, as part of its Misclassification Initiative, the DOL signed a memorandum of understanding with the Colorado Dept. of Labor and Employment to jointly prevent, detect and remedy employee misclassification.  Similar agreements already exist in Montana, Utah and eight other states. Given the agency’s continued focus on the construction industry, employers should immediately review their business arrangements and pay practices for potential problems, then decide what changes need to made and how best to make them.  Addressing the following problem areas now could substantially reduce potential liability later.

Misclassification of Workers

The DOL repeatedly has identified employee misclassification in the construction industry as a top compliance and enforcement priority.  Construction companies need to carefully review their practices. Many employers mistakenly believe they do not have to comply with the FLSA or any state equivalent because they consider their workers to be “independent contractors” rather than employees. 

However, whether an individual is an independent contractor for FLSA or other purposes has nothing to do with what he or she is called.  Rather, an individual’s status as an independent contractor is determined by the “economic realities” test, which requires an agency or court to evaluate and weigh a number of vague factors, such as the degree of direction and control the employer has over the person.  Using that test, the DOL frequently concludes that many “independent contractors” are, in fact, employees.  Employers should carefully review their “independent contractor” relationships to determine whether they satisfy the DOL’s demanding test, as well as the various tests used by other federal and state agencies.

Business Arrangements

The DOL intends to examine the extent to which distinct and separate entities collaborate about or exercise control over workers on construction projects and, consequently, should share responsibility for complying with the FLSA with respect to those workers.  This can be the case if, for example, a worker’s efforts simultaneously benefit one or more entities under circumstances in which:

• There is an arrangement between or among the entities to share the worker’s services;

• One entity is acting directly or indirectly in the interests of one or more others in relation to the worker; or

• The entities “are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with” one or more others.

Construction employers should review their business arrangements to determine whether they may be considered a joint employer of an employee or group of employees.  

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