December 7, 2021

Volume XI, Number 341


December 06, 2021

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Department of Labor Issues Final Independent Contractor Rule

The Department of Labor’s (DOL) Wage and Hour Division has formally released a Final Rule defining “independent contractors” under the Fair Labor Standards Act (FLSA). The regulation provides that “an individual is an independent contractor, as distinguished from an ‘employee’ under the Act, if the individual is, as a matter of economic reality, in business for him or herself.”

The regulation was published in the Federal Register on January 7, 2021, and is scheduled to take effect on March 8, 2021, 60 days after publication.

Economic Dependence Factors

The final regulation largely adopts the Notice of Proposed Rulemaking (NPRM) introduced September 25, 2020, with a few changes made in response to the more than 1,800 comments received on the NPRM.

Under the Final Rule, five distinct factors inform the “economic dependence” inquiry, none of which are dispositive. Nevertheless, the Final Rule gives the following two “core factors” the most weight:

1. The nature and degree of the worker’s control over the work; and

2. The worker’s opportunity for profit or loss.

The DOL considers these two factors to be most probative of economic dependence. The final regulation explains that these two factors are given greater probative value because, “if they both point towards the same classification, whether employee or independent contractor, there is a substantial likelihood that is the individual’s accurate classification.”

If these two factors point to different conclusions as to the individual’s status, the DOL explains that the other three (less probative) factors can help guide the analysis:

3. “[T]he amount of skilled required”

4. “[T]he degree of permanence” of the parties’ work relationship

5. An analysis of whether the putative employee’s work is “part of an integrated unit of production”

Emphasis is on the actual practices of the working relationship, not what the parties’ contract may theoretically allow (such as rights reserved, but never exercised, by the putative employer).

Changes From Proposed Rule

In response to public comment, the Final Rule includes a new subsection stressing that additional factors not listed also may be useful criteria in determining an individual worker’s status under the FLSA, to the extent they are probative as to whether the individual is in business for themselves or is economically dependent on an employer.

Additionally, in the Final Rule, the DOL revised language in the NPRM to more clearly articulate the difference between the “probative value” of a core factor, generally, and its weight in a particular case to emphasize that “greater probative value” does not always mean that the factor carries more weight.

Many commenters on the NPRM urged the DOL to add industry-specific examples to the Final Rule demonstrating how the newly refined economic reality test would apply. The agency largely declined the recommendation, noting that doing so would result in “an exhaustive treatise” and that it was impractical “to provide examples for every conceivable scenario.” However, a new section to the Final Rule offers six examples that shed light on the various economic reality factors in different factual and industry scenarios.

Rule’s Future is Uncertain

While the Final Rule is scheduled to go into effect on March 8, 2021, the Biden administration may try to delay, and ultimately block, it. Joe Biden is expected to issue a directive to all agencies to delay the effective date of any pending regulation that is not yet effective. Putting aside legal challenges to this directive, the Biden administration could issue a new rule, rescinding this Final Rule. Further, under the Congressional Review Act, the Democratic majority in the Senate and House could rescind the new rule with presidential approval.

Alternatively, the independent contractor Final Rule could face legal challenge, and the Biden DOL may not defend it.

Finally, the Final Rule makes clear that the standard adopted does not supplant state law or apply to other federal laws beyond the FLSA. Employers must consider state law variances, including states (like California) that apply a more demanding standard.

Jackson Lewis P.C. © 2021National Law Review, Volume XI, Number 7

About this Author

Justin R. Barnes, Jackson Lewis, Federal Employment Lawyer, Discrimination Allegations Attorney

Justin R. Barnes is a Principal in the Atlanta, Georgia, office of Jackson Lewis P.C. He represents employers in federal and state courts and before administrative agencies on a variety of labor and employment related issues, including collective and class action wage and hour disputes, labor arbitrations, allegations of discrimination, and employment-related contract disputes.

Mr. Barnes’ practice is focused primarily on defending complex wage and hour class and collective actions in state and federal courts across the...

Jeffrey Brecher, Jackson Lewis, Management Arbitration Lawyer, Labor Litigation Attorney

Jeffrey W. Brecher is a Principal in the Long Island, New York, office of Jackson Lewis, and is Practice Group Leader of the firm's Wage and Hour practice. He has litigated hundreds of cases, defending management at arbitration, before state and federal administrative agencies and at trial.

Mr. Brecher regularly advises clients on compliance with various state and federal laws affecting the workplace, including discrimination and related claims arising under Title VII, Family and Medical Leave Act, Americans with...

Mia Farber Employment Litigation Attorney Jackson Lewis Los Angeles, CA

Mia Farber is a principal in the Los Angeles, California, office of Jackson Lewis P.C. and a former member of the firm's Board of Directors. She currently leads the firm’s California Class and Private Attorneys General Act (PAGA) resource group. She has extensive experience in all facets of employment litigation.

Mia has represented employers in all types of employment litigation, including sexual harassment, discrimination, retaliation, and wrongful termination. She also has vast experience in the area of wage and hour class actions. Mia has defended a...

David Golder, Jackson Lewis, wage hour dispute attorney, Fair Labor Standard Act Lawyer

David R. Golder is a Principal in the Hartford, Connecticut, office of Jackson Lewis P.C. Mr. Golder has extensive experience handling class and complex litigation, including nationwide, high-stakes wage and hour disputes. Mr. Golder defends employers in class-based, multi-plaintiff, and multi-district wage and hour class and collective actions involving claims for employee misclassification, improper payment of wages, off-the-clock work, and meal and rest break violations. Mr. Golder also provides preventive advice and counsel to employers wishing to limit their...

Eric R. Magnus, Jackson Lewis, Wage and Hour Class Defense Lawyer, Employment Matters Attorney

Eric R. Magnus is a Shareholder in the Atlanta, Georgia, office of Jackson Lewis P.C. His practice is focused primarily on defending federal and state wage and hour class and collective actions in jurisdictions across the United States.

Mr. Magnus’ collective and class action practice focus primarily on “donning and doffing,” “off-the-clock” and misclassification wage and hour cases. Mr. Magnus has obtained summary judgment at the district and circuit court levels in Fair Labor Standards Act and state law cases across the...