News & Articles

DOL Proposes New Rule Favoring Independent Contractor Status disgruntled-workers-sm.png

09 / 26 / 2020

Under a new proposed rule issued by the United States Department of Labor, the DOL looks to "simplify" compliance for businesses struggling with how to apply the economic reality test.  According to Wage and Hour Division Administrator Cheryl Stanton, "the Department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility."  

Under the new proposed rule, the DOL would:

1.  Adopt an "economic reality" test to determine a worker's status as an FLSA employee, by which the issue is whether a worker is in business for himself/herself (independent contractor) or is economically dependent on the putattive employer for work (employee).  This test is in stark contrast to the common law tests applied under other Federal laws.

2. 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.

3. Identified 3 other factors that serve as additional guideposts in the analysis:  (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an intergrated unit of production.

4. Advises that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker under the FLSA is an employee or an independent contractor.

News Release, www.dol.gov, U.S. Department of Labor Proposes Rule to Clarify Employee and Independent Contractor Status under the Fair Labor Standards Act.

According to Bloomberg Law, this rule will "ease" business use of independent contractors, because it essentially looks to shield businesses from misclassification claims.  It suggests that the DOL proposed rule issued by the Trump Administration is a push back response to blue-state efforts to expand the scope of employee status, using tests like the ABC test, arising in states like California (Assembly Bill 5), Massachusetts, New Jersey and Connecticut.  The article suggests that worker classification is a hot topic, because of the rise of the gig economy, "where independent contractors are central to the business models of leading companies like Uber Technologies, Inc., Lyft, Inc., and Instacart."  www.news.bloomberglaw.com.  The article goes on to suggest that federal judges may not give deference to the rule, once finalized.  As further noted in the article, Uber, Lyft, DoorDash, Instacart and Postmates are backing a ballot initiative in California that will give voters a chance to "exempt" these type of drivers from the ABC test there.

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Worker classification issues involve a myriad of laws, at the Federal and state levels.  Each Federal law may or may not be governed by the "common law" and the approach taken by the United States Supreme Court in Nationwide Insurance Co. v. Darden, based on whether the statute in question is "remedial" in nature.  Whereas laws like the Fair Labor Standards Act is remedial in nature, requiring considering of certain economic reality factors, other laws, like the definition of employee and application of worker classification standards by the Internal Revenue Service do not.  This distinction can tip the balancing of factors and evidence in favor of employment, especially in situations where a presumption of employment is utilized.  

If you are in need of worker classification analysis, it is recommended that you seek assistance from attorneys with knowledge of these varying standards and laws.  Mr. Tufts can be reached at 407-647-7887 with regard to employee vs independent contractor issues, inclusive of joint employer determinations.