U.S. Department Of Labor’s Newest Version Of The Independent Contractor Test
Today, the Department of Labor announced a proposed rule that would change the test used under the Fair Labor Standards Act to determine whether a worker is an independent contractor or an employee. This is the Biden Administration’s second attempt to modify the independent contractor rule promulgated under the Trump Administration.
Near the close of Trump’s presidency, the Trump Administration published a rule establishing a multifactor “economic realities test” that placed special emphasis on whether a worker is economically dependent on an employer. Specifically, that rule prioritized the nature and degree of control a company has over the work and the worker’s opportunity for profit or loss. Other factors included the skill required to complete the work, the degree of permanence of the worker’s and employer’s working relationship, and whether the work is “part of an integrated unit of production.” Under this rule, however, if the first two factors pointed to the same classification, then there was a “substantial likelihood” that the classification was correct. In such cases, consideration of the remaining factors was deemed unlikely to impact the worker’s classification. As a result, it was assumed that it would be easier for companies to classify workers as independent contractors.
After assuming office, the Biden Administration first delayed the Trump-era rule’s effective date, then later withdrew the rule entirely. However, a federal court in Texas reinstated the rule effective March 8, 2021. Now, the DOL proposes revising the Trump-era rule to eliminate the default preference to be given to any factor while giving consideration to the “totality of the circumstances.”
Under the proposed rule, “all factors that may be relevant” in determining whether a worker is an independent contractor are to be considered. These include, but are not necessarily limited to, (1) the worker’s opportunity for profit or loss depending on managerial skill, (2) investments by the worker and the employer, (3) the degree of permanence of the working relationship, (4) the nature and degree of control the employer has over the worker, (5) the extent to which the work performed is an integral part of the employer’s business, and (6) the skill and initiative the worker needs to perform the work. In addition, other factors may be considered if they clarify whether the worker is economically dependent on the employer for work.
With this revision, the DOL aims to place more workers within the ambit of the minimum wage and overtime requirements of the Fair Labor Standards Act. Consequently, employers may find that workers who are independent contractors under the current rule may become employees if the new rule becomes effective.
Currently, the proposed rule remains unpublished but is scheduled to be published Thursday, October 13, 2022. It is expected the DOL will allow 45 days after that for public comments to be submitted. After consideration of the public comments received, the DOL will publish the final version of the rule with the date the rule is set to go into effect. An unpublished version of the rule may be found here.
Nemeth Law will continue to monitor legislation, regulation, administrative guidance, and litigation related to independent contractor requirements. We encourage you to contact any Nemeth Law attorney with your independent contractor-related questions.