The U.S. Department of Labor recently released its proposed rule that updates its definition of an independent contractor (IC) under the Fair Labor Standards Act.
First: It is a proposed rule, not a final rule.
The DOL is not adopting an entirely new definition of what it means to be an IC. It is also not adopting the ABC test or any other new test. The DOL has long used the Economic Realities test which weighs multiple aspects of the relationship between the contracting company and the IC to determine if the IC is an independent business making significant decisions that lead to the IC’s profit or loss.
This proposed rule would act as the DOL’s new interpretation of the Economic Realities test, using it to form their investigations and rulings on misclassification claims and eliminating the current version used by the Trump administration.
The problem is the DOL’s proposed interpretation of the Economic Realities test favors employee status more than prior versions.
Under this rule, the DOL will consider six factors when determining if a worker is an independent contractor:
When the DOL makes determinations about independent contractor status, they view these factors as a balancing test. Not every factor must be met, and no single factor outweighs them all.
Over the next 45 days, the public will comment on the proposed rule, offering arguments for and against the rule or recommended changes. The DOL will then review the comments and decide if it wants to publish the rule with or without changes or scrap it and start over. A decision can be made any time after the 45-day period and is often made within a few weeks or months.
If finalized, the rule will only apply to claims overseen by the U.S. DOL. It has no impact on IRS issues or workers' compensation, unemployment, or many state claims. It applies mostly to claims brought by independent contractors or the DOL itself alleging the independent contractor was improperly classified and not paid minimum wage, not paid overtime, or forced to pay business expenses without reimbursement under federal law.
This is a rule, not a law, and not a court decision. Rules are published by agencies like the DOL whereas laws are passed by legislatures or courts. While rules must not conflict with laws, they are often given leeway since courts consider agencies to be experts in their fields.
This proposed rule proves what we already knew to be true: the DOL strongly favors finding a worker is an employee vs. an IC, making adhering to compliance with IC status rules more critical now than ever.
Three points to always remember are:
For over 20 years, Openforce has actively helped industry trade associations push back against laws and court decisions that have negatively impacted IC status. This will be no different as we are already working with multiple state and national trade associations to lend our expertise and support in their efforts to push back on misguided rules like this.
Contact us today to learn how Openforce can help your business ensure compliance under the new DOL independent contractor rule.