As administrations go, so do the rules and interpretations of their agencies.  When one party wins the presidency, the other’s ideals and strongly held beliefs are thrown out and the new party’s concepts are embraced.  The Department of Labor is not immune to this process.

This week, the Department of Labor announced its Notice of Proposed Rulemaking regarding the classification of workers as independent contractors. (Photograph Unrelated) While this is not an applicable regulation yet, there is a distinct possibility that it goes on the books in the near future.

The basis of the rulemaking is the long-used “economic reality test,” where multiple factors are weighed, such as the worker’s opportunity for profit or loss, investment, permanency, the degree of control by the employer over the worker, whether the work is an integral part of the employer’s business, and the skill and initiative of the worker.

In 2021, the DOL published a rule that placed emphasis on “the nature and degree of control over the work and the worker’s opportunity for profit or loss,” and stated that if those two weighed heavily for independent contractor status, they were unlikely to be overcome by the other factors.

The new proposed rule reflects the Department’s new belief that the 2021 rule doesn’t “comport with the FLSA’s text and purpose as interpreted by courts,” and rescinds the 2021 rule.  The Department is advocating to return to the “totality-of-the-circumstances” analysis, in which the different factors “do not have a predetermined weight and are considered in view of the economic reality of the whole activity.”

The goal for the change, as stated by the agency, is to avoid the consequences of workers being misclassified and being excluded from the protections of the FLSA.  With an employee-friendly administration in power, this shouldn’t come as a surprise.  The protections in place for employees far exceed those of independent contractors.

What this means for employers is that, if the proposed rules are actually added to the FLSA regulations, they must be mindful of all factors included in the economic reality test, and no longer focus solely on the “degree of control” by the worker and the worker’s opportunity for profit and loss.  Employers must be sure that their contractors remain independent, and they are able to demonstrate a separation in their entire working relationships.

At this point, there is nothing changing from the last rule change in 2021, as the notice-and-comment period for this proposed rule goes until November.  But employers should continue to evaluate the nature of their relationships with their independent contractors, and make changes where they feel necessary.  If you, or your organization need assistance in determining whether your independent contractors are, in fact, independent, contact Wiley Reber Law, for legal advice that works.