Executive Summary: On January 9, 2024, the United States Department of Labor (DOL) announced a final rule that revises the DOL’s interpretation of employee classification under the Fair Labor Standards Act (FLSA) only. The rule has no bearing on the analysis used for classification under any other federal, state, or local laws. The final rule goes into effect on March 11, 2024.
Background: The DOL announced its proposed new independent contractor rule in October 2022. At that time, the DOL anticipated the proposed rule would become effective in May 2023. The effective date of the proposed rule, however, was pushed back twice.
The New Final Rule: Ultimately, the new rule replaces the Trump Administration’s Independent Contractor Status under the Fair Labor Standards Act rule (the “2021 Independent Contractor Rule”). The new rule restores the multi-factor economic realities test the DOL used prior to the 2021 Independent Contractor Rule. The factors are nonexhaustive, and no one factor is dispositive. The weight given to each factor will depend on the facts and circumstances of a particular case. The factors include the following:
- Opportunity for profit or loss a worker might have;
- The financial state and nature of any resources a worker has invested in the work;
- Degree of permanence of the work relationship;
- The degree of control an employer has over the person’s work;
- Whether the work the person does is essential to the employer’s business; and
- The worker’s skill and initiative.
The Bottom Line
The final rule differs from 2021 Independent Contractor Rule in significant ways (e.g. weighing all factors in the analysis equally, adding a sixth factor for consideration, and providing additional facts to consider when analyzing employer control). The new rule should provide employers more consistency between the analysis applied by the majority of courts and the DOL. Employers must still continue to be mindful of state laws (e.g., California, New Jersey, Massachusetts) that provide much more stringent tests to determine whether a worker is an independent contractor or an employee.
