US DOL Restores Obama-Era Independent Contractor Standard
The U.S. Department of Labor released a final rule Jan. 10 rescinding the 2021 independent contractor standard and reverting to previous interpretations of the Fair Labor Standards Act.
The new rule restores the Obama administration’s standard of evaluating six equally-weighted factors when determining whether a worker should be considered an independent contractor.
Those factors are designed to guide analysis of worker-employer relationships, including:
- Any opportunity for profit or loss a worker might have
- The financial stake and nature of any resources a worker has invested in the work
- The degree of permanence of the work relationship
- The degree of control an employer has over the person’s work
- Whether the work the person does is essential to the employer’s business
- Use of the worker’s skill and initiative
DOL officials said the rule, which takes effect March 11, 2024, “restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed.”
Wage and Hour Rules
The 2021 standard, enacted during the final weeks of the Trump administration, set two core factors—control over work and opportunity for profit or loss—for determining independent contractor status.
After a federal court blocked the Biden administration’s attempt to withdraw that rule later in 2021, DOL released a new proposed rule in October 2022.
The definition is critical, as it triggers coverage under federal law, with distinct differences between employees and independent contractors.
For instance, the FLSA establishes federal overtime and wage and hour and rules and sets recordkeeping standards for covered employers.
“Misclassification of independent contractors has long been a common and complex legal issue for employers,” notes CBIA HR counsel Diane Mokriski.
The National Labor Relations Board earlier rejected the Trump administration standard with a June 2023 decision that reinstated the previous multi-factor test.
The NLRB ruled that that all aspects of an employment relationship must be assessed when determining status, with no one factor being decisive or deserving of greater weight.
Those factors include the extent of control the employer exercises over the work, the method of payment, how much skill is required, and whether the employer supplies tools and the place of work.
While the rule released this week is likely to face legal challenges from employer groups, DOL officials said they were confident it would survive scrutiny.
“We feel very confident in this rule,” said Solicitor of Labor Seema Nanda.
“We have very carefully considered the case law under the FLSA in developing the rule and are certainly prepared to defend the rule if there are any challenges.”
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