The U.S. Department of Labor (DOL) has just published a new proposed rule addressing whether a worker is an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA). The proposed rule, published on Oct. 13, 2022, is the latest effort by successive administrations to regulate the independent contractor relationship. Importantly, the proposed rule does not directly affect independent contractor classification under state laws utilizing the "ABC" test, such as California, Massachusetts and New Jersey, to name a few. However, the Notice of Proposed Rulemaking does specifically call out "[h]igh incidence[s] of misclassification of employees as independent contractors" in trucking and gig economy companies, among others.
The proposed rule would rescind the previous rule from January 2021 and replace it with a non-exhaustive, six-factor test that is likely to make businesses more reluctant to engage independent contractors. The proposed rule is also likely to encourage and incentivize legal action against businesses for worker misclassification claims such as overtime, minimum wage, and other ancillary wage and hour claims under applicable state law. The listed factors in the proposed rule are: 1) opportunity for profit or loss depending on managerial skill; 2) investments by the worker and the employer; 3) degree of permanence of the work relationship; 4) nature and degree of control; 5) extent to which the work performed is an integral part of the employer's business; and 6) skill and initiative.
A key question, in DOL's view, is whether, as a matter of economic reality, the workers are economically dependent on the alleged employer or are in business for themselves. But the proposed rule does not provide clarity for the frequent scenario in which workers who desire to be independent contractors choose themselves to be "economically dependent" on work made available to them by one company. In short, despite its professed desire to provide guidance to businesses, the proposed rule seems likely to create more uncertainty for companies that utilize legitimate independent contractor relationships to carry out important business functions.
Interested parties have until Nov. 28, 2022, to submit comments on the proposed rule to the DOL. Assuming the DOL moves forward with the final rule after the comment period, it likely would issue in late 2023 or early 2024.
For a more detailed analysis of the proposed rule and the history behind it, see previous Transportation Blog posts and alerts from Holland & Knight:
