U.S. Department of Labor Propose Rule to Clarify Independent Contractor Status
Updated: Oct 1, 2020
On September 22, 2020, JNCL-NCLIS attended a briefing hosted by the U.S. Department of Labor (Department) regarding a proposed rule addressing how to determine whether a worker is an employee under the Fair Labor Standards Act (FLSA) or an independent contractor.
In the more than 80 years since enactment of the Fair Labor Standards Act, or FLSA, the Department has never adopted a rule defining the term "independent contractor", leaving employers and workers searching for guidance. The topic was last addressed by the Supreme Court nearly 60 years ago.
"Unlike AB-5, our rule doesn’t propose radical changes in who’s classified as an employee or independent contractor," said Eugene Scalia, Secretary of the U.S. Department of Labor. "Instead, our rule aims to simplify, clarify and harmonize principles the federal courts have espoused for decades when determining what workers are “employees” covered by the minimum wage and overtime pay requirements of the FLSA."
Once finalized, states and policy-makers will be able to refer to the rule for guidance when considering worker classification outside the FLSA context.
The Department’s proposed rule:
Adopts an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee);
Identifies and explains two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself;
Identifies three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and
Advises that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.
The Department seeks comment on all aspects of the proposed rule; comments can be submitted through regulations.gov for 30 days following the publication on the Notice of Proposed Rulemaking in the Federal Register. Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and be posted without change to regulations.gov.