DOL Unveils Final Rule on Independent Contractors, Set to Become Effective on March 11

DOL Unveils Final Rule on Independent Contractors, Set to Become Effective on March 11

To decide whether a worker may be regarded as an independent contractor, the Fair Labor Standards Act has a classification clause. The U.S. Department of Labor published a final rule on Tuesday that updates its interpretation of this provision.

The final rule mainly follows the agency’s proposed rule from October 2022. The proposal’s multifactor, “totality-of-the-circumstances” framework for determining the status of independent contractors is still in place.

Following this approach, the DOL will evaluate the relationship between an employee and a prospective employer based on six non-exhaustive factors:

  • Opportunity for profit or loss for workers.
  • investments both the employer and the employee have made.
  • The degree of stability in the professional relationship.
  • Type and level of control over the task being done.
  • The extent to which the completed work is essential to the employer’s operations.
  • Use of creative abilities and skills of the employee.

The rule is scheduled to go into effect on March 11 and will be published in the Federal Register on Wednesday, January 10, according to authorities.

Acting Secretary of Labor Julie Su stated during a news conference on Monday that the final rule will guarantee fairness for workers, especially those who are misclassified and thus do not receive overtime compensation, minimum wage, or other FLSA benefits.

According to Su, “No one should be forced to live and work below these labor protections.” As part of my job, I’ve visited and spoken with employees all across the nation who, despite working year-round and full-time, yet find it difficult to make ends meet due to misclassification. They occasionally perform the same tasks side by side with people who are appropriately classed.

In a related move, the Department of Labor is repealing the final rule for 2021 independent contractors, which was implemented in the final weeks of the Trump administration. In May 2021, the Biden administration attempted to revoke the regulation; however, a federal court overruled their efforts, ruling that the 2021 rule’s revocation was illegal under the Administrative Procedure Act.

When reporters asked Solicitor of Labor Seema Nanda about the agency’s plans to combat potential legal challenges to the most recent independent contractor rule, she cited DOL’s outreach initiatives, which comprised a series of listening sessions in addition to the proposed rule’s notice-and-comment period. More than 55,000 public comments were received, according to officials on Monday.

“The court’s concerns with our rule in the previous challenge to the recission that we issued at the start of the administration were primarily procedural, and the court actually recommended that the department replace the previous administration’s 2021 [independent contractor] rule with an economic reality test,” Nanda stated. “We have great confidence in this regulation. When creating the rule, we gave careful consideration to the case law under the [FLSA], and we are ready to defend it if it is challenged.”

The head of the DOL’s Wage and Hour Division, Jessica Looman, stated that the final rule differs in a few ways from the agency’s 2022 proposal. It makes it clear, for instance, that control indicative of an employment relationship does not include measures made by a potential employer solely to adhere to applicable federal, state, tribal, or municipal laws or regulations. The guideline further states that expenses imposed on an individual basis by a prospective employer are not a sign of being an independent contractor.

Looman went on to say that the “ABC” test, a methodology that other states, like California, have used to establish whether someone is an independent contractor or not, is not included in the final rule.

“This rule is not focused on one sector of the economy or one type of worker; rather, it provides broad guidance across many industries,” stated Looman. “It offers fact-based analysis that must be used in every situation to ascertain whether a worker is an independent contractor doing self-employment work or an employee.”

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