The Department of Labor (“DOL”) issued a new Independent Contractor Interpretive Rule
, seeking to bring both “clarity and consistency” to one of the most controversial areas of employment law, publishing the rule in the Federal Register
on Friday, September 25, 2020.
The proposed rule uses an "economic reality" test, which considers two core factors:
- whether a worker is in business on his/her own, e.g., independent, or
- whether the worker is economically dependent on another company for work, thus, an employee.
If those two factors are not conclusive, three other subordinate factors are to be considered: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production.
The department's stance mirrors the Opinion Letter of the Wage and Hour Division and ‘tracks’ in significant degree the NLRB’s regulation as well. As such, many consider the new regulation is intended to make it easier for companies to classify workers as independent contractors, excluding them from workplace protections like minimum wage, overtime pay, sick leave, and employment discrimination laws.
The proposed rule also makes clear that requiring an individual to comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed-upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses would not constitute control that makes the individual more or less likely to be an employee under the FLSA.
The new rule is likely to have an immediate impact on a number of pending lawsuits on this issue. Uber, Lyft, Amazon, Instacart, Grubhub, and others are fighting to convince courts that their drivers are independent contractors under the FLSA. This new rule will give the companies support in that argument against claims by workers that they are “independent” in name only, with the companies often controlling the amount they can charge and the rules they must observe at work. Significantly, the DOL’s rule would have no effect on state laws, such as California’s A.B. 5, which has a uniquely high standard for independent contractors to meet. A number of the most important cases are being brought under California law.
The Labor Department intends to “fast-track” the approval process, with comments due on October 26th, with the goal of finalizing the rule before the end of the year. It is likely to be challenged in court.
Contact your FortneyScott attorney for additional information and assistance in complying with this new Rule.