Banking and Business Monthly – October 2022

The Department of Labor (“DOL”) published a new proposed rule addressing whether a worker is an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA). This proposed rule has been expected since the DOL withdrew a more employer-friendly, Trump-era independent contractor rule in May 2021 that sought to classify workers as independent contractors depending on two core factors: the nature and degree of control over the work and the worker’s opportunity for profit or loss (the “Contractor Rule”). The proposed rule, if it becomes final, could impact many gig and contract workers. The DOL specifically noted that there has been a “[h]igh incidence of misclassification of employees as independent contractors” in “agriculture, construction, trucking, housecleaning, in-home care, stagecraft, and ‘sharing economy’ companies.”

The proposed rule signals a return to a “totality-of-the-circumstances” analysis of the economic reality test focusing on the following factors: (1) the opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the employer; (3) degree of permanence of the work relationship; (4) nature and degree of control; (5) the extent to which the work performed is an integral part of the employer’s business; and (6) the skill and initiative required in performing the job. Instead of focusing on the Contractor Rule’s two core factors, the DOL’s new proposal would analyze all factors but with a focus on whether workers are economically dependent on their employers for work or actually are in business for themselves. Overall, the proposed rule opts for a more circumstantial and fact-dependent test than the Contractor Rule and is more likely to make businesses reluctant to engage independent contractors.

Interested parties have until November 28, 2022, to submit comments on the proposed rule to the DOL. The final rule likely will be issued late next year. Employers should be aware that the regulation is only interpretive.  Courts are not required to follow it, although some may find the DOL’s interpretation persuasive. In addition to the DOL, the IRS, the NLRB, and other federal and state agencies have their own tests for determining independent contractor vs. employee status, so employers need to stay aware of developments in this area, and should consult with counsel to assist as appropriate.

For further inquiries or questions about independent contractor classification or other banking or business matters, please contact me at smigala@lavellelaw.com or at (847) 705-7555.