August 15, 2022

Volume XII, Number 227


August 12, 2022

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DOL Finalizes New Rule on Independent Contractor Classification

Following up on its release of a proposed rule issued in September 2020, the DOL finalized new regulations on classifying independent contractors that it suggests will provide clarity for employers. On January 6, 2021, the DOL announced the Final Rule, which will take effect on March 8, 2021 (60 days after publication).

At the outset, the Final Rule addresses comments that it had received in response to the publication of the proposed rule, specifically noting that many Uber drivers were supportive overall, and some commentators stated that there was no need for a Rule at all. The DOL pointed to the inconsistencies and confusion in past applications of the economic realities test as a reason why the Final Rule was necessary.

The Final Rule looks similar to the proposed rule published in September 2020. The Final Rule:

  • Adopts an “economic realities” test to determine a worker’s status and provides clarification on the concept of economic dependence, the “touchstone” of the economic reality test; and

  • Describes the five factors involved in the “economic realities” test:

    • The nature and degree of the individual’s control over the work;

    • The opportunity for profit or loss;

    • Skill required for the work;

    • Permanence of the working relationship; and

    • Whether the work is part of an integrated unit of production.

  • Emphasizes that there are two “core” factors: the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss, which are given substantial weight in classifying workers.

The Final Rule also contains a provision that advises employers (and employees alike) that actual practice is more relevant to the correct classification than what employers or employees may like to assert through contracts, etc. Further, at the request of commentators and in the DOL’s attempt to provide even more clarity, the Final Rule includes six illustrative examples that involve application of the economic realities test across different industries and fact scenarios. The examples included the following:

  • The control factor in the long-haul transportation industry;

  • The opportunity factor in the context of the gig economy;

  • The opportunity factor in the construction industry, and further clarifies the concept of economic dependence;

  • The permanence factor in the seasonal hospitality industry; and,

  • The integrated unit factor in the context of the journalism industry.

Although the Final Rule promises clarity that employers have wanted, employers should be mindful of the administration change that may bring about more changes and/or rescind the Final Rule in general. The Final Rule becomes effective on March 8, 2021 – until then, the Final Rule may be subject to postponement, amendment, etc. because the Biden Administration (as many administrations have done in the past) has the ability to postpone the effective dates of final rules and/or rescind them entirely.  In fact, Jen Psaki, Biden’s choice for press secretary, cited the rule as one that would be impacted by a memo to block outgoing actions taken by the outgoing administration that are not yet official.

© 2022 Foley & Lardner LLPNational Law Review, Volume XI, Number 7

About this Author

Brooke C. Bahlinger Foley Gardere

Brooke C. Bahlinger is an associate and litigation lawyer with Foley Gardere in Dallas.

While she was a student at Louisiana State University, Brooke was a research assistant. She assisted with research in employment and labor law, specifically CLE papers, law review comments, and course book submissions.

Brooke worked as an assistant for a law firm in Baton Rouge, Louisiana, where she researched and analyzed case law and statutes to draft legal memorandums on topics such as employment law, bankruptcy, obligations, and civil procedure.

Carrie Hoffmann, Foley Lardner Law Firm, Dallas, Labor and Employment, Litigation Law Attorney

Carrie Hoffman represents and counsels major employers nationwide in all areas of labor and employment law across a wide range of industries, including retail. Carrie is highly regarded for her experience with wage and hour issues, as well as employment discrimination and retaliation claims. She regularly reviews and drafts employment agreements – such as covenants not to compete – and advises clients on a wide variety of labor and employment issues, such as:

  • Workplace safety

  • Workplace harassment...