DOL Issues New “Independent Contractor or Employee” Interpretation

By: Jordan M. White

On October 11, 2022, the U.S. Department of Labor (DOL) announced the publication of its new proposed interpretation for workers as independent contractors or employees under the Fair Labor Standards Act (FLSA).

In its notice of proposed rulemaking (NPRM), which was published on October 13, 2022, the DOL stated the new proposed rule delineates a multifactor analysis rooted in the economic reality “where no one factor or set of factors is presumed to carry more weight.” According to the DOL, such a test will be more helpful in “evaluating modern work arrangements” and align more closely with courts’ interpretations of the FLSA. In sum, the proposed rule will shift the analysis of whether a worker is an employee of a business for purposes of the FLSA from the more streamlined 2021 “economic reality” test to a more complex “totality-of-the-circumstances” standard.

In the new proposed rule, the DOL identifies six factors to guide whether the “economic realities of the working relationship” reflect a worker who is economically dependent on the employer for work or in business for him or herself based on the “totality-of-the-circumstances”: (1) the “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,” including “whether the employer uses technological means of supervision (such as by means of a device or electronically), reserves the right to supervise or discipline workers, or places demands on workers’ time that do not allow them to work for others or work when they choose”; (5) the “extent to which the work performed is an integral part of the employer’s business”; and (6) the “skill and initiative” of workers, referring to whether a worker uses specialized skills brought to the job or is “dependent on training from the employer to perform the work.”

Worker classification under the FLSA matters because independent contractors are not subject to the minimum wage and overtime requirements of the FLSA. Moreover, even in light of the prevalence of independent contractors in today’s economy, courts and the DOL have been inconsistent at best in the classification of workers. Although the DOL’s proposed rule is not yet final, companies may want to consider how the multifactor test could impact their operations if the final rule that is adopted by the DOL is the same or similar. Members of Wyatt’s Labor & Employment service team are more than happy to assist with any questions you may have. As mentioned above, the NPRM was published in the Federal Register on October 13. Thus, there will be a 45-day period, i.e., November 28, 2022, for the submission of comments.