The Proposed Independent Contractor Rule Under the FLSA
By Daphne Assimakopoulos
On October 13, 2022, the Department of Labor (DOL) published a Notice of Proposed Rulemaking setting factors to be considered when determining a worker’s employee verses independent contractor status under the Federal Fair Labor Standards Act (FLSA). The FLSA, among other measures, establishes the minimum wage and overtime requirements for employees in the private sector and in Federal, State, and local governments. The DOL put forth the proposed rule, in part, to address misclassification of workers. A determination of employee status is critical to worker protection, as the FLSA’s protections apply only to employees, not to independent contractors. Misclassification leaves workers vulnerable to wage theft and other means of exploitation by unscrupulous employers. It is also an issue of racial and gender justice: according to a report from the Economic Policy Institute, seven of eight high-misclassification occupations, including app based services prevalent in the gig economy, are held disproportionately by women and workers of color.
The proposed rule adopts a multi-factor economic realities test that considers the “totality of the circumstances” in its analysis. It rescinds and rebalances a Trump-era rule that included five factors but inequitably gave two factors greater weight: the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on personal initiative or investment. The new rule would still consider these two factors but would add four others: investments by the worker and the employer, the degree of permanence of the working relationship, the extent to which the work performed is an integral part of the employer’s business, and the degree of skill and initiative exhibited by the worker. Additional factors might also be considered where particular factual circumstances call for it. Despite calls from advocates, the DOL did not adopt California’s ABC Test which many argue is the best test. The DOL claims that such a standard is not possible through rulemaking and would require congressional action. The full proposal is accessible at this link.
The proposed rule, while limited to the application of the FLSA to covered worker classifications, is a step in the right direction. The DOL, in its proposed rule, rightfully urges consideration of the economic reality that a worker faces, rather than focusing on legal formalism divorced from a real world that, through so called innovative business models, exploits the unprotected. That said, the rule’s changes will work at the margins. While such is needed, it is hardly enough, more bold action, through Congressional intervention and other federal government rulemaking, is needed to address this serious concern.
Other federal agencies currently have and may adopt in the future alternative standards under different statutes. For example, the NLRB is expected to alter their standard for defining when a worker is an employee under the National Labor Relations Act, in the coming months and could take a different and more inclusive approach than the one the DOL adopted.
WRI encourages affected workers to share their thoughts with the DOL. The rule is now in the “notice and comment” phase, which means any stakeholder can submit their reactions or feedback to the department of labor until December 13, 2022.