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The U.S. Department of Labor on Tuesday announced a final rule revising its interpretation of the classification provision of the Fair Labor Standards Act to determine whether a worker can be considered an independent contractor.
The final rule largely follows the agency’s October 2022 proposed rule. It maintains the multifactorial, “totality of the circumstances” framework for analyzing independent contractor status included in this proposal.
Under this framework, DOL will consider six non-exhaustive factors when examining the relationship between an employee and a potential employer:
- The worker’s opportunity for profit or loss.
- Investments made by the worker and the employer.
- Degree of permanence of the employment relationship.
- Nature and degree of control over the execution of the work.
- Measure in which the work performed is an integral part of the entrepreneur’s activity.
- Use of the worker’s skill and initiative.
The rule will be published in the Federal Register on Wednesday, Jan. 10, and is scheduled to take effect on March 11, officials said.
In a press conference Monday, Acting Labor Secretary Julie Su said the final rule would ensure a level playing field for workers, especially vulnerable workers who are misclassified and lose minimum wage, overtime and other job protections. the FLSA
“These labor protections are a floor under which no one should be forced to live and work,” Su said. “In my role, I’ve traveled and spoken to workers across the country who work full-time year-round and still struggle to make ends meet due to misclassification. Sometimes they work side by side with people who are properly classified, doing the same job”.
Separately, DOL is rescinding the Trump administration’s 2021 independent contractor final rule, which had been enacted in the final weeks of that administration. The Biden administration tried to withdraw the rule in May 2021, but a the federal court reinstated itconsidering that the act of repeal of the 2021 rule violated the Administrative Procedure Law.
Asked by reporters how the agency planned to defend itself against potential legal challenges to the latest independent contractor rule, Labor Attorney Seema Nanda pointed to DOL’s outreach efforts, which included both the notice and comment period of the proposed rule as a series of hearings. sessions Officials said Monday they received more than 55,000 public comments.
“In the pre-recession challenge we made at the beginning of the administration, [the court’s] the problems with our rule were largely procedural in nature, and the court suggested the department could have superseded the previous administration’s 2021. [independent contractor] rule with an economic reality test,” Nanda said. “We feel very confident in this rule. We have very carefully considered the case law under the [FLSA] in the development of the rule, and we certainly stand ready to defend it if there is any challenge.”
The final rule makes some changes from DOL’s 2022 proposal, said Jessica Looman, administrator of DOL’s Wage and Hour Division. For example, it clarifies that actions taken by a prospective employer for the sole purpose of complying with applicable federal, state, tribal, or local laws or regulations do not constitute monitoring indicative of an employment relationship. The rule also advises that costs to a worker unilaterally imposed by a prospective employer are not investments indicative of independent contractor status.
Looman further stated that the final rule does not adopt an “ABC” test, a framework that jurisdictions, including California, have adopted to determine independent contractor status.
“This rule provides broad guidance to many industries and is not focused on one sector of the economy or one type of worker,” Looman said. “It provides a fact-based analysis that must be applied in each circumstance to determine whether a worker is an employee or an independent contractor in your business.”
