US DOL Proposes Overhauling Independent Contractor Rule

The U.S. Department of Labor announced a new proposed rule Feb. 26 overhauling the classification of independent contractors under the Fair Labor Standards Act.

The proposed rule, issued by the DOL’s Wage and Hour Division, rescinds a 2020 Biden administration rule on the standard for classifying independent contractors.

It replaces it with an analytical framework similar to the one adopted by the department in 2021.

DOL officials said the proposed rule is designed to clarify and differentiate between employees entitled to protections under the FLSA and independent contractors.

 “The department’s proposed rule seeks to protect these workers’ entrepreneurial spirit and simplify compliance for American job creators navigating a modern workplace, all while maintaining robust protections for employees under the Fair Labor Standards Act,” said Secretary of Labor Lori Chavez-DeRemer.

Legal Impact

The proposal also applies DOL’s streamlined analysis to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, both of which use the FLSA’s statutory definition of “employ.”

DOL Wage and Hour Division administrator Andrew Rogers said the rule is in line with the intent of the FLSA.

The proposed rule has implications for other federal laws, including the Family and Medical Leave Act.

He added the streamlined regulations will “improve compliance, reduce misclassification, and reduce costly litigation in an economic environment that needs flexibility and innovation.”

The previous standard used six equally weighted factors to determine whether a worker qualified as an independent contractor.

Proposal

The proposed rule would:

• Apply an “economic reality” test to determine whether a worker an independent contractor or an employee economically dependent on an employer for work
• Identify two “core factors” to help determine if a worker is economically dependent on an employer:
  • The nature and degree of control over the work
  • The worker’s opportunity for profit or loss based on initiative and/or investment
• Consider additional factors including:
  • The amount of skill required for the work
  • The degree of permanence of the working relationship
  • 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 examples applying the factors to real-life circumstances

DOL said the proposed rule is consistent with U.S. Supreme Court and federal circuit court precedent.

Rogers added that it is “aimed at ensuring that workers and employers know how to apply those principles predictably.”

The proposed rule is subject to a 60‑day public comment period, which closes at 11:59 pm on April 28.