DOL Issues Notice of Proposed Independent Contractor Rule

On October 13, 2022, the Wage and Hour Division of the U.S. Department of Labor (“DOL”) published a Notice of Proposed Rulemaking regarding a new standard for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. The proposed rule, entitled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act,” would create a six-factor framework for classifying workers as employees or independent contractors.

Specifically, the rule would establish a holistic analysis that evaluates: (1) the opportunity for profit and loss; (2) investment by the worker and employer; (3) the degree of permanence of the working relationship; (4) the nature or degree of control; (5) the extent to which the work is integral to the employer’s business; (6) and the degree of skill and initiative the worker exhibits. These six factors, which would not be assigned any predetermined weight under the proposed rule, are derived from courts’ prior development and application of the “economic reality” test when classifying workers as employees or independent contractors.

This new framework aims to provide consistency for businesses and protect workers from misclassification, which can deprive them of their federal wage and hour rights. The proposed rule also seeks to align more closely with judicial precedent interpreting the Fair Labor Standards Act.

In addition, the proposed rule would rescind a Trump-era independent contractor classification rule, which focuses primarily on only two factors of the economic reality test. In justifying the change, the DOL’s Solicitor of Labor, Seema Nanda, explained that the Trump-era rule “risks increasing, instead of reducing, misclassification,” and is “out of sync with what the courts have been saying for decades.”

The DOL initially attempted to rescind the Trump-era classification with a new rule published in May 2021. However, a Texas federal court invalidated the Biden DOL’s rule in March 2022 on the grounds that the DOL had not followed proper administrative procedure. Following the court’s decision, the DOL restarted the rulemaking process for its proposed rule and sent plans to the White House for review in July 2022. 

Since announced, the proposed rule has been met with some criticism. Dale Brown, the president and CEO of Financial Services Institute, stated that the quick turnaround between  the DOL’s town halls in the summer and its Notice of Proposed Rulemaking “raises concerns about how much consideration, if any, the department gave to the feedback it received from American workers and employers.”

Additionally, Representatives Virginia Foxx (R-NC) and Fred Keller (R-PA) have expressed beliefs that the proposed rule could inhibit workers’ abilities to act freely as independent contractors. The representatives stated jointly, “Americans want the freedom and flexibility that comes with independent contracting, and depriving them of such liberties is a kick in the teeth.”

Following publication in the Federal Register, the public has 45 days to comment on the proposed rule, until November 28, 2022.

Updates will be posted to this blog as the matter progresses.

The legal team at Miller Shah LLP has extensive experience representing worker misclassification matters. If you have any questions regarding this subject or this post, please contact Chiharu Sekino (cgsekino@millershah.com) or Mark Xiao (mxiao@millershah.com). The Firm can also be reached toll-free at (866) 540-5505.