Today (October 13, 2022), the Department of Labor (“DOL”) issued a proposed rule that would provide guidance on classifying workers as employees or independent contractors under the Fair Labor Standards Act (the “FLSA”). The FLSA requires employers to pay non-exempt employees at least the federal minimum wage and overtime pay for all hours worked beyond 40 hours in a work week. The FLSA does not apply to independent contractors. In other words, this proposed rule would be a "practical guide" for employers to understand how the DOL would apply the FLSA.
This proposed rule would rescind and replace the January 2021 rule, which adopted the economic realities test to determine if a worker was an employee or independent contractor. The economic realities test has five factors:
• The nature and degree of the worker's control over the work;
• The worker's opportunity for profit or loss;
• The amount of skill required;
• The exclusivity and length of the relationship between the worker and the alleged employer; and
• The extent to which services rendered are an integral part of the business
The DOL’s 2021 rule identified the first two factors (the nature and degree of worker’s control over work and worker’s opportunity for profit or loss) as the most probative.
The proposed rule would restore the multifactor “totality of the circumstances” analysis that has been applied by various courts. In short, the proposed rule would give equal weight to six factors:
• Opportunity for profit or loss
• Investments by the worker and the employer
• Degree of permanence of the work relationship
• The nature and degree of the worker's control over the work;
• The extent to which services rendered are an integral part of the business; and
• The amount of skill required.
It is important to note that, the proposed rule addresses independent-contractor classification under the FLSA, and not any other statute. Different tests apply for determining employee status under, for instance, the Internal Revenue Code (taxes), National Labor Relations Act (unionization), and Title VII (discrimination). Also, the proposed rule does not directly affect independent-contractor classification for purposes of state employment laws. For instance, the proposed rule does not directly affect states that have implemented a California-style "ABC" test for classifying workers.
The DOL will receive public comments on the proposed rule until November 28, 2022. The final regulations will not go into effect until after the DOL reviews the comments submitted and publishes a final rule. Miles & Stockbridge lawyers will continue to monitor developments regarding the latest status of the regulations.
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