Yesterday, the federal Department of Labor announced a rule that might reduce the risk of employees being mislabelled as independent contractors. This rule is effective on March 11, 2024, and it is particularly important for workers who are mislabelled as independent contractors too often by employers who do not want to comply with labor laws.
As the National Employment Law Project stated:
Specifically, the DOL’s new rule provides new guidance on how to analyze employee or independent contractor classification under the Fair Labor Standard Act (FLSA) by providing detailed guidance on employee or independent contractor status. If a worker believes they are mislabelled as an independent contractor by an employer, the Department of Labor will use the multifactor “economic reality” test (6 factors and other relevant) to determine whether a worker is an employee or an independent contractor:
(1) the opportunity of the worker for profit or loss depending on managerial skill;
(2) investments by the worker and the employer (new factor);
(3) degree of permanence of the work relationship;
(4) nature and degree of control;
(5) the extent to which the work performed is an integral part of the potential employer’s business; and
(6) skill and initiative.
Under this economic reality test, no single factor (or set of factors) automatically determines a worker’s status as either an employee or an independent contractor. Also, none of these factors has a predetermined weight, and the DOL may consider relevant other factors if in some way indicate whether the worker is in business for themself (i.e., an independent contractor), as opposed to being economically dependent on the employer for work (i.e., an employee under the FLSA). All factors are all weighed to assess whether a worker is economically dependent on a potential employer for work, according to the totality of the circumstances. Finally, this new rule’s analysis may be applied to workers in any industry and includes detailed guidance on applying these factors.
This final rule differs from the Department’s 2021 Independent Contractor Rule in several ways, aligning with the analysis currently applied by courts and providing greater consistency for workers and businesses alike. Specifically the final rule:
(1) Returns to a totality-of-the-circumstances economic reality test, where no single factor or group of factors is assigned any predetermined weight;
(2) Considers six factors (instead of five), including the investments made by the worker and the potential employer;
(3) Provides additional analysis of the control factor, including a detailed discussion of how scheduling, supervision, price-setting, and the ability to work for others should be considered when analyzing the nature and degree of control over a worker;
(4) Returns to the Department’s long-standing consideration of whether the work is integral to the employer’s business (rather than whether it is exclusively part of an “integrated unit of production”);
(5) Provides additional context to some factors, including a discussion of exclusivity in the context of the permanency factor and initiative in the context of the skill factor; and
(6) Omits a provision from the 2021 Independent Contractor Rule that minimized the relevance of an employer’s reserved but unexercised rights to control a worker.
If you have questions on the employment classification of a particular worker or group of workers, please contact your nearest WHD District Office at https://www.dol.gov/agencies/whd/contact/local-offices or your local worker center. For more information visit the Department of Labor FAQs at https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking/faqs.