Proposed Rule Updating Employee Classification Under FLSA
The Department of Labor (DOL) Wage and Hour Division has released a proposed rule titled Employee or Independent Contractor Classification Under the Fair Labor Standards Act (FLSA) that is scheduled to be published on October 13, 2022. The Department believes that its proposed rule would reduce the risk that employees are misclassified as independent contractors, while providing added certainty for businesses that engage with individuals who are in business for themselves.
Workers classified as independent contractors may not be afforded the protections of the FLSA. These include payment of federal minimum wage for all hours worked, and entitlement to overtime compensation for hours worked over 40 in a workweek.
The DOL is proposing to discontinue the use of “core factors” and instead return to a totality-of the-circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity. The proposal details six specific economic reality factors, but indicates that this should not be an exhaustive list for consideration.
(1) 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) Extent to which the work performed is an integral part of the employer’s business
(6) Skill and initiative
The Department is also proposing to formally rescind the 2021 Independent Contractor (IC) Rule. The effective date of the 2021 IC Rule was March 8, 2021. On March 4, 2021, the Department published a rule delaying the effective date of the 2021 IC Rule (Delay Rule) and on May 6, 2021, it published a rule withdrawing the 2021 IC Rule (Withdrawal Rule). On March 14, 2022, in a lawsuit challenging the Department’s delay and withdrawal of the 2021 IC Rule, a Federal district court in the Eastern District of Texas issued a decision vacating the Delay and Withdrawal Rules. The district court concluded that the 2021 IC Rule became effective on the original March 8, 2021, effective date.
Comments on the proposed rule must be received by November 28, 2022.
