DOL Proposes New Independent Contractor Rule
Takeaway: The U.S. Department of Labor (DOL) is publishing a new proposed rule that would change the federal legal standard for determining whether a worker is an employee or independent contractor. The proposed rule has been perceived as more favorable to workers, in contrast with the current independent contractor rule, which is viewed as more friendly to business owners.
On Oct. 11, 2022, the DOL announced a new proposed rule that would change the legal framework for determining whether a worker is an employee or independent contractor under federal law. The DOL explained in a news release that the proposed rule aims to combat the misclassification of employees as independent contractors, opining that this is “a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage of law-abiding businesses, and hurts the economy at large.”
The DOL anticipates the proposed rule will be published in the Federal Register Thursday, Oct. 13, though a 184-page unofficial version is now available. In a nutshell, the DOL hopes to enact the following new multi-factor test for determining whether a worker is an employee or independent contractor based on the economic realities of the working relationship:
- The worker’s opportunity for profit or loss depending on managerial skill.
- The degree of investments (i.e., costs borne) by the worker and the employer.
- The degree of permanence of the working relationship.
- The nature and degree of employer control in the working relationship.
- The extent to which the work performed is an integral part of the employer’s business.
- The workers’ use of specialized skills and whether they contribute to a business-like initiative.
- Additional factors that may be relevant if they indicate whether the worker is in business for themselves or economically dependent on the employer for work.
The new test would replace a five-factor economic realities test that was enacted during the previous administration. This is the DOL’s second attempt to rescind the prior test. As we previously reported in the Stevens & Lee Labor and Employment Law Center, the DOL had published a rule withdrawing the prior standard in spring 2021. However, the withdrawal attempt was soon challenged, and a Texas federal court invalidated it in March 2022 on the grounds that DOL did not follow administrative procedure requirements.
Although the DOL’s appeal of the Texas federal court decision to the Fifth Circuit remains pending, the appeals process has been paused so the DOL could draft the new independent contractor rule, which is set to be published in two days If you have any questions about how this or any other labor and employment law development may affect your business, please contact Daniel J. Sobol at firstname.lastname@example.org, Alexander V. Batoff at email@example.com, or the Stevens & Lee attorney with whom you regularly work.