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DOL Proposes New Rule Clarifying Independent Contractor Status

September 30, 2020

The United States Department of Labor (the “DOL”) recently proposed a new rule defining independent contractor status (the “Proposed Rule”) for Fair Labor Standards Act (“FLSA”) purposes.  Independent contractors are not employees under the FLSA and do not share in the FLSA’s protections.  To date, courts and the DOL have evaluated worker status for purposes of the FLSA under an “economic reality” test.  The DOL’s Proposed Rule seeks to add certainty to the evaluation.

The Proposed Rule defines independent contractors as “workers who, as a matter of economic reality, are in business for themselves as opposed to being economically dependent on the potential employer for work.”  The DOL seeks to create a five-factor test for determining the status of the worker.  The test is based on:

  1. The nature and degree of the individual’s control over the work;
  2. The individual’s opportunity for profit or loss;
  3. The amount of skill required for the work;
  4. The degree of permanence of the working relationship between the individual and the potential employer; and
  5. The extent to which services rendered are an integral part of the potential employer’s business.

Of those five factors, the DOL proposes designating the first and second factors as so-called core factors, which would be granted greater weight in the determination.

The Proposed Rule will undergo a 30-day comment period before being finalized.  If you have questions about this or any other workforce issue, please do not hesitate to contact your relationship attorney or one of Honigman’s Labor & Employment attorneys.