The Last Lame Duck Opinion Letters from the Trump Administration

On January 19, 2021, the Wage and Hour Division (WHD) of the United States Department of Labor (DOL) issued several opinion letters addressing issues and questions related to exemptions and potential misclassification under the Fair Labor Standards Act (FLSA).  Three of those opinion letters are addressed in this article.

Retail or Service Establishment Exemption

In Opinion Letter FLSA2021-6, a trade association of employment staffing firms asked the DOL whether such staffing firms could qualify as “retail or service establishments” to claim this exemption under the FLSA.  In response, the DOL emphasized the recent withdrawal of a list of establishments that were categorically precluded under FLSA regulations from qualifying as “retail or service establishments.” See The DOL Continues its Examination of the Retail Sales Overtime Exemption.  “Employment agencies” had been previously listed in FLSA regulations as an example of an establishment that did not qualify for the “retail or service establishment” exemption.

After noting this change, the DOL then proceeded to analyze the other requirements of the “retail or service establishment” exemption based on the facts and assumptions presented to it.  One of these facts suggested that the staffing firms were paid a fee by businesses to provide employment referral services but were not paid by the individuals themselves who were seeking job placement. 

Given this reality, the DOL noted an establishment must have a “retail concept,” but that this did not require the establishment to have individual customers.  Instead, according to the DOL, “courts have repeatedly held that business may qualify as retail or service establishments when their customers are predominantly commercial entities.”  The DOL then looked at the other “retail concept” factors listed in the regulation and generally concluded that employment staffing agencies could, in principle, arguably satisfy these criteria. 

Ultimately, this opinion letter does not say much conclusively as a matter of law other than, following the recent removal of the list of “retail or service establishments” from FLSA regulations, employment staffing agencies might qualify for asserting the exemption as to some of their employees.

Creative Professional Exemption

Much like the opinion letter on staffing agencies, Opinion Letter FLSA2021-7 does not ultimately offer any new substantive guidance on the law, other than suggesting that certain journalists might qualify for the creative professional exemption under the FLSA.  The opinion letter dives into background on general legal principles regarding the potential application of exemptions to journalists, the historical development of the journalism industry, and the responses of some courts to exemption questions for journalists considering those changes over time.

Ultimately, the DOL only generally concluded that some, but not all, journalists may qualify for the creative professional exemption:

“Every journalist who performs the appropriate primary duties qualifies for the creative professional exemption.  Every journalist—regardless of the size, prestige, or geographic reach of the journalist’s employer—whose primary duties are work requiring invention, imagination, originality or talent, as opposed to work which depends primarily on intelligence, diligence, and accuracy, whose work product is not subject to substantial control by the employer, and who meets the exemptions’ salary level requirements, is exempt as a creative professional.”

In so concluding, the DOL did little more than repeated established legal requirements and noting the possibility of exemptions for journalists as creative professionals under certain factual circumstances.  While the opinion letter provides some additional light on how this exemption could apply (or be argued to apply) to certain journalists, the law largely remains the same.

Distributors: Employees or Independent Contractors

In Opinion Letter FLSA2021-8, the DOL issued an opinion letter in response to a fact-intensive request from a manufacturer to determine whether its distributors are employees or independent contractors under the FLSA.  After a lengthy recitation of certain assumed facts, the DOL applied its new, streamlined “economic dependence” analysis to the question before it. See DOL Announces Final Rule on Determining Independent Contractor Status under the FLSA.

The DOL focused its analysis primarily on “control” and “opportunity for profit or loss”—that is, the new two “core factors” that must be considered under the new Final Rule set to take effect this year.  In terms of “control,” the DOL focused on scheduling, choosing assignments, supervision, and opportunity to work for others.  In the DOL’s view, these factors all leaned toward independent contractor status under the facts presented. 

As to the “opportunity for profit or loss,” the DOL expressed its opinion that the facts presented suggested that the manufacturer’s distributors had independent contractor status.  The DOL explained that this factor requires consideration of not only the opportunity for profit or loss, but also the management of investments and capital expenditures “because ‘economic investment, by definition, creates the opportunity for loss,’ and ‘investors take such a risk with an eye to profit.’”  In addition, when considering investments, the DOL emphasized:

“…it is the worker’s investments alone, not those investments in comparison to the potential employer’s, which matter when considering investment. ‘Comparing their respective investments does little more than compare their respective sizes and resources,’ and such a comparison ‘does not illuminate the worker’s economic dependence or independence.’  After all, ‘[l]arge corporations can hire independent contractors, and small businesses can hire employees.’”

After its analysis of the two “core factors” above, the DOL noted “[t]his does not quite end our analysis.  In unusual circumstances, the probative value of the other three factors—skilled required for the work, permanency of the relationship, and integration of the work into a unit of production—may require a contrary finding even if the two core factors point toward the same status.”  However, the DOL finally concluded that consideration of these other factors did not establish “unusual circumstances” or otherwise change its analysis and determination that the distributors were independent contractors.

While this opinion letter serves as little more than an exemplar for how the WHD would analyze and determine misclassification claims as related to the specific manufacturer and distributors in question, it does provide some additional guidance on how issues and principles under the new “economic dependence” regulation might be framed and applied.

Update: The Wage and Hour Division of the United States Department of Labor has withdrawn Opinion Letter FLSA2021-8 because it was issued prematurely based on rules that have not gone into effect.  As a result, it may not be relied upon as a statement of agency policy as of the date of its withdrawal.  It remains to be seen whether the Biden administration will take further steps to prevent or delay the new independent contractor-employee rule promulgated during the Trump administration.

Takeaways

The ultimate effect or value of these opinion letters remains to be seen.  On their face, there is nothing groundbreaking in terms of the stated law or its application.  Moreover, such “lame duck” opinion letters are often short-lived, and the incoming Biden administration may withdraw some, all, or none of these letters.  Other regulatory changes may also impact their value and effect going forward.  In any event, stay tuned for further developments.