The U.S. Department of Labor ("DOL") has published its new final rule regarding whether workers are properly classified as employees, who are subject to the overtime and minimum wage protections of the Fair Labor Standards Act ("FLSA"), or independent contractors, who are not. The DOL claims that its new rule provides greater consistency for employers that engage with individuals who are in business for themselves and harmonizes the analysis applied by the majority of courts. Business groups likely have a different perspective and may file suit to overturn the rule as they have with other agency rulemaking. While the new rule may be most relevant to gig economy employers like Uber and franchisors who fear being deemed to be joint employers of their franchisees' workers, it applies to all employers. Any company that classifies its workers as independent contractors in violation of this rule could be subject to investigation or fines by the DOL.
The DOL's new rule establishes a six-factor test for analyzing the relationship between the worker and the employer, and it states that no one factor is more important than the others. All factors are viewed under the totality of the circumstances. The factors to determine a worker's classification include:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the potential employer;
- Degree of permanence of the work relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the potential employer's business; and
- Skill and initiative.
The rule also states that additional, unnamed factors may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA.
The new rule replaces the DOL's 2021 Independent Contractor Rule, and it is effective March 11, 2024. The prior rule, enacted under the Trump administration, emphasized the "core" factors of the nature and degree of control a company exercised over the work and the worker's opportunity for profit or risk of loss. The new rule is more employee-friendly than its predecessor.
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