February 1st, 2024
employment
UNITED STATES DEPARTMENT OF LABOR ANNOUNCES NEW INDEPENDENT CONTRACTOR RULE

On January 9, 2024, the United States Department of Labor (“DOL”) released its final rule that revises the DOL’s determination of whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FLSA”). The final rule goes into effect on March 11, 2024.

The new rule replaces the Trump Administration’s Independent Contractor Status under the FLSA rule (the “2021 Independent Contractor Rule”) and returns the multi-factor economic realities test the DOL used prior to the 2021 Independent Contractor Rule. The factors are non-exhaustive and are to be applied equally.  The new rule clarifies that one or more factors may be more probative than others, while in other cases one or more factors may be irrelevant. The six factors include the following:

1.     Opportunity for profit or loss a worker might have;

2.     The financial state and nature of any resources a worker has invested in the work;

3.     Degree of permanence of the work relationship;

4.     The degree of control an employer has over the person’s work;

5.     Whether the work the person does is essential to the employer’s business; and

6.     The worker’s skill and initiative.

The new rules states “economic dependence is the ultimate inquiry for determining whether a worker is an independent contractor of an employee.”  Additional factors may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, if the factors indicate whether the worker is in business for himself, as opposed to be economically dependent on the potential employer for work.

The final rule differs from the previously used 2021 Independent Contractor Rule in several ways. The new rule (1) weighs all factors in the analysis equally, (2) has a sixth factor for consideration, and (3) provides additional facts to consider when analyzing employer control.

The new rule only defines independent contractor under the FLSA, and it does not apply to other federal laws or state wage and hour laws. The new rule should provide employers more consistency between the analysis applied by the majority of courts and the DOL. However, employers should continue to be aware of state laws that provide more stringent tests to determine whether a worker is an independent contractor or an employee to ensure they are in compliance with state laws.

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