DOL Bucks States’ Trend on Independent Contractors

By James Korte

On September 22, 2020, the United States Department of Labor (“DOL”) proposed regulations intended to make it easier for companies to classify workers as independent contractors. The proposed rule offers a framework for determining whether workers are “employees” subject to the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime provisions or “independent contractors” not subject to the minimum wage and overtime provisions.

The DOL considers two opposing questions: (1) whether a worker is in business for themselves, and thus an independent contractor, or (2) whether a worker is economically dependent on the putative employer for work, and thus an employee. To answer these questions, the proposed rule highlights two “core” factors: (1) does the worker exercise substantial control over the key aspects of the work; and (2) does the worker have an opportunity for profit or a risk of loss based on initiative or investment? If the answer to both is “yes,” the worker is most likely an independent contractor. If the answer to both is “no,” the worker is most likely an employee. If those two factors point in different directions, the DOL proposes three “guideposts” to help determine a worker’s status: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an integrated unit of production.

The DOL has fast-tracked the proposed regulations with a plan to finalize the rule this year. Once the proposal is formally published on the Federal Register, likely to happen this week or next, stakeholders will have thirty days to comment, which would give the DOL approximately two months to review the comments before issuing the final rule.

The DOL’s proposed rule provides a more business-friendly approach than the wave of state laws recently passed and implemented. However, this finalized rule will have little to no impact on state laws defining “independent contractor.”