On May 5, 2021, the Department of Labor (DOL) announced a final rule withdrawing the Independent Contractor Status Under the Fair Labor Standards Act final rule. Previously, the DOL proposed an economic reality test to determine if an individual was an independent contractor in business for himself or herself, or if the individual was economically dependent on the employer. The two core factors the DOL pointed to were (1) the nature and degree of control over the work, and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. Three other factors – amount of skill required for the work, degree of permanence of the working relationship between worker and employer, and whether the work is part of an integrated unit of production – could serve as additional guideposts in the analysis, particularly when the two core factors pointed to conflicting classifications.
In withdrawing the rule, the DOL indicated it was inconsistent with the Fair Labor Standard Act’s text and purpose, as well as judicial precedent, the elevation of the two core factors would undermine the longstanding balancing test and review of totality of the circumstances, and the narrowing of the analysis would result in workers losing FLSA protections.
Ultimately, the withdrawal of the Independent Contractor Rule means fewer workers can be properly classified as independent contractors than would be the case if the Independent Contractor Rule stood. Practically speaking, however, since the Independent Contractor Rule did not go into effect, employers should not see much difference in classification on the federal level.
Please note this current global emergency and applicable laws, regulations, proposals, guidance, advice, and responses change rapidly. We strive to keep you up to date as much as possible, but this blog article is intended for general informational purposes only and should not be construed as legal advice or opinion. Contact myHRcounsel with questions concerning specific facts and circumstances.
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