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To Be or Not to Be (An Independent Contractor): DOL Seeks to Clarify Independent Contractor Test in Landmark Proposed Rule
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More Employment & Labor | Government & Public Sector Aricles → Latest Firm's PressDykema On September 22, 2020, the U.S. Department of Labor (DOL) released its first-ever proposed rule outlining a test for when a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA). In its proposed rule, the DOL has created a new framework for the well-established “economic reality” independent contractor test. This test is used to determine whether the individual is truly in business for themselves (an independent contractor) or is economically dependent on their employer for work (an employee). Existing Guidance: Seven Equal Factors In the DOL’s existing guidance, the DOL puts forth seven “economic reality” factors, all of which are to be given equal weight:
Proposed Rule: Two Core Factors and Three Guidepost Factors The DOL has proposed that these existing seven equal factors be replaced with two “core factors” and three “guidepost” factors. The two “core” factors are the primary factors that will be given the most, if not exclusive, weight in the analysis. The three “guidepost” factors are only to be used as tie-breakers if the analysis of the core factors does not provide a clear answer. Core Factors:
Guidepost Factors:
Potential Effect of Proposed Rule Secretary of Labor Eugene Scalia explained in an editorial that since the Supreme Court “last spoke to the issue nearly 60 years ago… employers and workers looking for guidance have had to parse the sometimes-divergent decisions of the federal courts of appeal and opinion letters the Labor Department issues occasionally without public notice or input.” With this proposed rule, Secretary Scalia continued, the DOL hopes to create a “simple, clear approach that can be applied consistently nationwide.” While the proposed rule would clarify a murky and inconsistently-applied framework, critics, including the legal director of the National Employment Law Project, have argued that the proposed rule leans too heavily toward classifying workers as independent contractors and would “raise the threshold for contract workers, which includes gig workers, to be considered employees, a category which comes with significantly more protections.” See Eli Rosenberg, “New Trump Administrative Rule Could Make it Harder for Gig and Contract Workers to Have Rights as Employees,” The Washington Post (Sept. 22, 2020, 4:23 PM). The proposed rule also comes soon after California’s newly-enacted AB5, which aims to force “gig” companies such as Lyft and Uber to treat their workers as employees, has put independent contractor laws into the spotlight. The DOL’s rule will have no effect on California’s AB 5 or any other state law definitions of independent contractors. The public only has 30 days to file comments from the date of publication of the proposed rule in the Federal Register. Those interested in filing comments will be able to do so electronically at federalregister.gov. If you have any questions about the proposed rule or about the proper classification of your organization’s workers, do not hesitate to contact the authors of this blog or any Dykema labor and employment attorney.
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