On October 11, 2022, the Department of Labor (the “DOL”) announced a Proposed Rule that would reinstate the “economic realities” test for analyzing whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (the “FLSA”). Under the Proposed Rule, the ultimate inquiry would be whether, as a matter of economic reality, a worker is either economically dependent on an employer for work, or is in business for himself as an independent contractor, using a six-factor totality of the circumstances test.
The Proposed Rule would rescind a January 2021 rule, which narrowly focuses on two of five economic realities test factors—the employee’s nature and degree of control over the work, and the worker’s opportunity for profit or loss. Our memorandum addressing the January 2021 rule is available here.
The public will have 45 days to comment on the Proposed Rule after its scheduled October 13, 2022 publication in the Federal Register.
* * *
In January 2021, during the final days of the Trump Administration, the DOL published a final rule updating longstanding guidance regarding the classification of independent contractors under the FLSA (the “January 2021 Rule”). Among other things, the January 2021 Rule identified two “core factors” that were most probative of whether a worker was an employee or an independent contractor: the employer’s nature and degree of control over the work, and the worker’s opportunity for profit or loss.
Four days before the January 2021 Rule would have become effective, however, the DOL (now under the Biden Administration) published a rule delaying its effective date, and later published another rule withdrawing it altogether (the “Delay and Withdrawal Rules”). Litigation ensued challenging the Delay and Withdrawal Rules, and a federal district court in Texas ultimately vacated both, restoring the January 2021 Rule. That decision was appealed to the Fifth Circuit, but the appeal was stayed at the request of the DOL, to allow the DOL time to announce the current rulemaking.
In its announcement the DOL stated that the Proposed Rule provides “a framework more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the FLSA” by, among other things, “align[ing] the department’s approach with courts’ FLSA interpretation and the economic reality test,” “[r]estor[ing] the multifactor, totality-of-the-circumstances analysis,” and “[e]nsur[ing] that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.” Under the Proposed Rule, a six factor “economic reality” test is used to determine whether a worker is economically dependent on an employer for work (an employee), or in business for themselves (an independent contractor). The test is a totality of the circumstances test, meaning that the outcome does not depend on any specific factor. The factors are described below:
Under the Proposed Rule, additional factors may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, if the factors in some way indicate whether the worker is in business for themselves, as opposed to being economically dependent on the employer for work.
Comments on the Proposed Rule may be submitted here, between October 13 and November 28, 2022.
Sending an e-mail through this web site does not create an attorney-client relationship. You should not send us any information through this web site that you would want treated confidentially.