The U.S. Department of Labor (DOL) has issued its anticipated proposed rule to clarify who is an independent contractor under the federal Fair Labor Standards Act (FLSA).

Under the current 2021 rule, two “core factors,” those being control over the work and opportunity for profit or loss, carried greater weight than “non-core factors” in determining the status of independent contractors. The 2021 rule, which remains in effect until the proposed rule can be finalized, made it easier for employers to classify workers as independent contractors rather than employees.

Under the new proposed rule, employers would use a totality-of-the-circumstances test that considers multiple factors of the working relationship to determine whether a worker is truly in business for themselves. In addition to the ability to control the work and the opportunity for profit or loss, other factors to be considered under the “economic realities” test include:

• The amount of skill required for the work.
• The degree of permanence of the working relationship.
• The worker’s investment in equipment or materials required for the task.
• The extent to which the service rendered is an integral part of the employer’s business.

The proposed language directs employers to consider exclusivity as a consideration under the permanency factor but acknowledges that having multiple jobs does not weigh in favor of independent contractor status. As a result, this rule could classify Uber drivers and other similar gig workers as employees, requiring their employers to pay a minimum wage, overtime pay, and other benefits under the FLSA.

The proposed rule is scheduled to be published in the Federal Register on October 13. Employers may comment on the proposal for 45 days after the published date. The proposal is already drawing sharp criticism from business groups and will likely spark many legal challenges. Even then, states will be free to set their own rules on the matter.

The content of this Alert is provided for general information purposes only. It should not be considered legal advice or financial advice or used as a substitute for consulting an attorney for legal advice.