Independent contractor or employee? DOL seeking another rule change

Washington — The Department of Labor’s recent tug-of-war over what constitutes an employee or independent contractor has continued with the publication of a proposed rule on Feb. 27.

Under the proposal, DOL would rescind a 2024 Wage and Hour Division final rule and replace it with the employee classification analysis similar to one adopted in 2021.

According to a DOL press release, the proposed rule would “identify and explain” two “core factors” to help gauge if a worker is “economically dependent on an employer for work or in business for himself or herself”:

1. The nature and degree of control over the work.
2. The worker’s opportunity for profit or loss based on initiative and/or investment.

The analysis in the proposed rule would:

• Apply an “economic reality” test to determine whether a worker is in business for themselves as an independent contractor or an employee economically dependent on an employer for work.
• Identify other factors to help determine a worker’s status as an employee or independent contractor, including the amount of skill required for the work, degree of permanence of the working relationship and whether the work is part of an integrated unit of production.
• Advise that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
• Provide eight fact-specific examples applying the factors to real-life circumstances.

DOL’s classification rule under the Biden administration used six factors:

1. A worker’s opportunity for profit or loss.
2. A worker’s financial stake and the nature of any resources they’ve invested in the job.
3. The permanence of the employer-worker relationship.
4. The amount of control an employer exerts over a worker.
5. How essential the worker is to the business.
6. A worker’s “skill and initiative.”

“The rule we are proposing today is not only based on long-standing legal principles used in federal courts across the country but also is aimed at ensuring that workers and employers know how to apply those principles predictably,” WHD Administrator Andrew Rogers said in the release. “The department believes that streamlined regulations in line with Congress’s intent when it passed the Fair Labor Standards Act (of 1938) would improve compliance, reduce misclassification and reduce costly litigation in an economic environment that needs flexibility and innovation.”

In a separate release, Rep. Bobby Scott (D-VA), ranking member on the House Education and Workforce Committee, contends the proposed rule would “strip workers of their basic wage and hour protections and leave law-abiding businesses at a competitive disadvantage.”

He continued: “Unlike employees, independent contractors do not get essential protections, such as minimum wage, overtime, unemployment compensation, workers’ compensation, access to employee health care and benefits, pensions, or OSHA protections.”

The deadline to comment on the proposal is April 28.