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The U.S. Department of Labor (DOL) recently announced a new rule intended to clarify the definition of independent contractors under the Fair Labor Standards Act (FLSA). The proposed rule rolls back the DOL’s previously issued guidance on independent contractor status during the Obama Administration. This is a noticeable tilt toward the employer’s favor.
Highlights of the Proposed Independent Contractor Rule
The new rule adopts a 5-pronged “economic reality” test for determining a worker’s status as an employee or independent contractor under the FLSA. Generally, an independent contractor must be in business for him or herself and not be economically dependent on a putative employer for work.
While no one factor is decisive for determining economic independence, the proposed rule emphasizes two core factors:
- The nature and degree of the employer’s control over the work
- The worker’s opportunity for profit or loss based on personal initiative and/or investment
The DOL identifies three additional factors to be used as “guideposts” in the analysis when the initial factors are conflicting:
- The amount of skill required for the work
- The degree of permanence in the work relationship
- Whether the work is an integrated unit of production
The comment period for the proposed rule is limited to 30 days after it is published in the Federal Register, shorter than the typical 60- or 90-day period for public comments on significant rulemakings.
While the Trump Administration is fast tracking the rule before the president’s current term ends on Jan 20. 2021, it is unclear whether the rule will ultimately pass muster with the federal courts because judges apply a broader range of legal tests to distinguish between employees and independent contractors.
The Takeaway
The Labor Department argues that the proposed rule will reduce employee misclassification, however, critics contend the regulation will narrow the interpretation of independent contractors under the FLSA.
Given the pending presidential election, it remains to be seen if the proposed regulation will ultimately be approved. Meanwhile, a number of states — California, Massachusetts, New Jersey, and Connecticut — have enacted legislation that applies a far more rigid standard for determining when a worker can be classified as an independent contractor.
In any event, employee misclassification has become an especially pressing issue with the rise of the gig economy where independent contractors are key to the business models of companies in multiple industries. If you believe you have been misclassified by your employer, it takes a skilled employment law attorney to protect your rights.