The U.S. Department of Labor (“DOL”) announced today that it will publish a Notice of Proposed Rulemaking on October 13, 2022, in order “to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.” This marks the Biden Administration’s second attempt to rescind the pro-business independent contractor rule promulgated by the Trump Administration.
The proposed rule would require that workers who are “economically dependent” on the companies for which they perform work be treated as employees instead of independent contractors, making them eligible for minimum wage and overtime and exposing companies to tax liabilities and other legal requirements. The DOL framed the “ultimate inquiry” under the decades-old economic reality test as “whether, as a matter of economic reality, the worker is either economically dependent on the employer for work (and is thus an employee) or is in business for themselves (and is thus an independent contractor).”
In determining whether a worker is “economically dependent” under the proposed rule, the DOL said it will consider factors such as a worker’s “opportunity for profit or loss, investment, permanency, the degree of control by the employer over the worker, whether the work is an integral part of the employer’s business, and skill and initiative,” with no single factor weighing more heavily than another. This is a departure from the Trump era rule identifying five economic reality factors and designating the nature and degree of control over the work and the worker’s opportunity for profit and loss as “core factors” carrying the greatest weight in the independent contractor analysis.
The final rule, which is expected next year, would have a significant impact on companies that rely on the contractor business model.
Contact our employment law team for help navigating the implications of the proposed rule or other questions concerning worker classification.
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