Delaware’s Non-Flexible Test For Counting Workers as “Independent Contractors” Under the New Sexual Harassment Law

In response to a blog post that is available here, I received the following question: In the new Delaware sexual harassment law, as it pertains to the meaning of “independent contractor,” must a person working in Delaware be counted as an “employee” when s/he performs work that is inside the usual course of business of that “employer” even if such person meets standards for “independent contractor” under the Fair Labor Standards Act (“FLSA”) and the Internal Revenue Code?

As discussed below, I believe the answer is “yes.”*

To put the question in context, as discussed in the above-linked post, the new Delaware law (effective January 1, 2019) requires “employers” having 50 or more employees in Delaware to provide sexual harassment training – to be provided within the time-frame summarized here. As stated in that post, “independent contractors” need not be counted towards the 50 employee threshold. I also noted in my previous post that the meaning of “independent contractor” evolved during the legislative drafting process, settling on a definition that is incorporated by reference from Delaware’s Workplace Fraud Act – where misclassification is currently construed as “fraud.”

The definition of “independent contractor,” for purposes of determining who can be excluded in counting the number of employees under the new sexual harassment law, is an individual who: (1) performs the work free from the employer’s control and direction over the performance of the employee’s services; (2) is customarily engaged in an independently established trade, occupation, profession or business; and (3) performs work which is outside of the usual course of business of the employer for whom the work is performed.

Under the FLSA, the extent to which the work performed is an integral part of the company’s business is merely one of many factors in a six-factor “economic realities” analysis. The FLSA analysis does not include a checklist where any one factor is decisive of the decision of whether a worker is properly classified as an “independent contractor.” Indeed, in a past U.S. Department of Labor (“DOL”) Administrator’s Interpretation, we were reminded that flexibility in the FLSA test is necessary. As that interpretation explained, the factors should not be “analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized.” Although that Administrative Interpretation was withdrawn under the current DOL leadership, apparently on account of that interpretation declaring that most workers under FLSA’s broad definitions would be deemed “employees” rather than “independent contractors,” the non-mechanical, non-flexible analysis remains the test under FLSA.

Thus, the question gets at whether Delaware’s test is materially different from the one used under the FLSA – lacking the flexibility of that federal law. As stated above, I believe it is highly likely that the answer to the question asked is “yes.” If any one of the three prongs of the definition of “independent contractor” is not met, that will cause the worker to be deemed an “employee” for purposes of counting 50 employees (rather than an independent contractor who can be excluded).

Indeed, the test for “independent contractor” under Delaware’s new sexual harassment law appears to require a mechanical, non-flexible analysis unlike the FLSA. Therefore, if an employer has 49 undisputed employees and one person is hired to perform work inside the usual course of business of the employer, such employer will likely be deemed to have 50 employees. This is likely true regardless of whether other arguments about the nature of the one person’s work or relationship would prevail to find that such worker is an “independent contractor” under the FLSA. Such employer would be out of compliance with Delaware law if such employer fails to provide the training as required by Delaware law, which is summarized here.

Looking forward, as discussed here, some employers have concerns (and perhaps some employees or “independent contractors” have hope) that we will see future effort to create Delaware law that imposes additional potential liability for Delaware employers’ misclassification of workers as “independent contractors.” If the current definition of “independent contractor” under Delaware’s sexual harassment law is used for such a new law, more misclassification claims will succeed under Delaware law than would succeed under FLSA. If such a bill emerges, the importance of carefully and intentionally defining the meaning of “independent contractor” cannot be emphasized enough. Some might want a more flexible test, like under FLSA. Some might want a more non-flexible test, like under the Delaware sexual harassment law. There seems to be room for reasonable debate – but a debate should be had and a definition carefully crafted.

Additional interesting questions regarding the new Delaware sexual harassment law are emerging. For example, is it possible for a worker to be an “independent contractor” for purposes of the numerosity requirement but not an “employee” for purposes of the duty of an “employer” to providing training to “employees”? Stated differently, if a person is not an “independent contractor,” must they be an “employee” (where the definition of “employee” is separate from the definition of “independent contractor” and neither definition refers to the other term)? Also, where a worker is an “independent contractor” under FLSA but not Delaware’s sexual harassment law, are multiple “employers” responsible for providing sexual harassment training to such worker – meaning that if all follow the law, such worker will have the pleasure of attending potentially numerous interactive trainings?

Additional important questions are emerging regarding Delaware’s new sexual harassment law. For example, since that law specifically addresses a claim for sexual harassment, which previously was implied within the pre-existing prohibition of sex discrimination, which includes a definition of “employer” that is different and arguably narrower than the one used for sex discrimination, will fewer people have claims for sexual harassment than before application of the new law? Stated differently, has this new law actually eroded protections for sexual harassment?

Also, how is an “employer” supposed to determine if and when training is required when the number of “employees” floats above and below the 50-employee threshold over the course of time?

Although questions are piling up, for purposes of responding to the question that was asked, suffice it to say that if any one of the three prongs of the definition of “independent contractor” in Delaware’s new sexual harassment law is not met, that will likely cause the worker to be deemed an “employee” for purposes of determining whether sexual harassment training is required.

Practice Pointer: Employers in Delaware should not rely on their FLSA compliance audit to determine who is and is not an “employee” for purposes of determining whether sexual harassment training is required.

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