On October 13, 2022, the U.S. Department of Labor (DOL) released a proposed new rule regarding the classification of independent contractors under the Fair Labor Standards Act (FLSA). If enacted, the rule will narrow the definition of “independent contractor”, having significant implications for workers and employers.
In January 2021, the DOL (under President Trump) issued a rule outlining a five-factor test for determining a worker’s status. Two factors were designated to be of greater importance: (1) nature and degree of control the worker has over their work, and (2) worker’s opportunity for profit or loss. Three less probative factors included: (3) amount of skill required for the work, (4) degree of permanence of the working relationship, and (5) whether the work is part of an integrated unit of production.
The Biden administration promptly published rules to delay and withdraw this Trump-era rule. However, a federal district court found that the Biden administration failed to follow proper procedures and concluded that the Trump rule became effective March 8, 2021. The DOL appealed to the Fifth Circuit, but asked proceedings to be paused while it withdrew the Trump rule and issued a new rule.
DOL’s Proposed New Rule
The DOL’s proposed new rule seeks to return to a totality-of-the-circumstances approach, where 7 factors are analyzed without given a predetermined weight: (1) worker’s opportunity for profit or loss, (2) investments by the worker or employer, (3) degree of permanence of the working relationship, (4) nature and degree of control the worker has over their work, (5) extent to which work performed is integral to employer’s business, (6) skill and initiative of the worker, and (7) additional factors that are relevant in determining whether the worker is economically dependent on the employer.
On June 9, 2023, the Fifth Circuit granted the DOL’s request to suspend proceedings in the case for 120 days while it considers whether to adopt the rule. The DOL has until October 7, 2023 to finalize the rule or continue with its appeal. However, the more recently published Spring Regulatory Agenda indicates an anticipated rule release to be August 2023.
It is unclear which timeline will ultimately prevail, but workers and employers should stay informed and monitor updates from the DOL.