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DOL Proposes New Rule Regarding Independent Contractor Status

In light of the federal court ruling reinstating the Trump-era independent contractor regulation (discussed here), on October 13, 2022, the Department of Labor published a Notice of Proposed Rulemaking regarding independent contractor status under the Fair Labor Standards Act.

The new rule proposes to rescind and to replace the rule published in 2021, which framed the “economic reality” test in terms of two “core factors”—(1) the nature and degree over the work and (2) the worker’s opportunity for profit or loss—along with three further factors that may receive little or no weight in any given instance. The DOL is scrapping that formulation of the test in favor of a return to a “totality of the circumstances” standard under which the various factors “do not have a predetermined weight and are considered in view of the economic reality of the whole activity.” The DOL is hoping that the proposed rule will “will provide more consistent guidance to employers as they determine whether workers are economically dependent on the employer for work or are in business for themselves, as well as useful guidance to workers on whether they are correctly classified as employees or independent contractors.”

The DOL has identified six economic factors that should inform the economic reality analysis: (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, and (6) skill and initiative of the workers. The DOL added that the list is non-exhaustive and that there may be additional factors.

Interested parties will have until November 28, 2022 to submit comments.