On September 22nd, the U.S. Department of Labor announced a proposed rule clarifying the definition of employee under the Fair Labor Standards Act (FLSA) as it relates to independent contractors.
The rule is intended to provide a model for when businesses may legally classify workers as independent contractors as opposed to employees covered by federal minimum wage and overtime law. The DOL is proposing a more employer-friendly interpretation of employee status under the Fair Labor Standards Act than it applied during the Obama administration.
DOL’s proposal seeks to offer businesses clarity on a contested area of employment law and hence protection from a wave of ongoing worker lawsuits that have accused trucking companies and others in the gig economy. DOL leadership has made it a priority to finalize the regulation before the end of President Trump’s term on January 20, 2021 – applying a timeline that is unusually short for a rule that would have ramifications throughout the economy.
The proposed rule adopts an “economic reality” test for determining which workers qualify as independent contractors. It explains that contractors must be in business for themselves, rather than being economically dependent on the possible employer for work. The rule explains the “inquiry into economic dependence is conducted through the application of several factors, with no one factor being dispositive, and that actual practices are entitled to greater weight than what may be contractually or theoretically possible” according to the DOL’s Wage and Hour Division rule. DOL proposes narrowing this test into five factors, less than the number used by various courts, and previously used by the DOL.
The DOL, trying to complete the rulemaking this year, has given the public only 30 days to file comments from the date of publication in the Federal Register. We encourage trucking companies, consulting companies, and other industry entities that rely heavily on independent contractors and relations with independent contractors as a core part of their business plan to contact Attorney Frank Botta, who is enlisting a group of businesses to develop a coordinated written response to the DOL’s proposed rule.