The Department of Labor issued its long-expected proposed rule on independent contractor status under the Fair Labor Standards Act. As expected, the proposed rule limits the scope of such status under federal law and would make it harder for employers to classify workers as contractors.
The new proposed rule returns to the multi-factor economic realities test, with a focus on whether the worker is economically dependent on the employer or is in business for themselves. That inquiry is based on a totality of six non-exhaustive factors, none of which would alone determine independent contractor status:
- Opportunity for profit and loss;
- Investment by the worker and employer;
- The degree of permanence of the working relationship;
- The nature or degree of control;
- The extent to which the work is integral to the employer’s business; and
- The degree of skill and initiative the worker exhibits.
Is the rule an “ABC test” wolf in sheep’s clothing? While the above factors are themselves nothing new – and certainly don’t, on their face, resemble the feared ABC test – the manner in which they are defined in the proposed rule suggests a similarly restrictive approach to independent contractor classification. For example, per the proposed rule and the DOL’s included interpretations:
- Control is not merely direct control exercised by the employer, but includes limited or potential control over working conditions. An employer’s control over compliance with legal or safety obligations, for example, could indicate employee status.
- Investments by the worker must be “capital or entrepreneurial in nature” to be indicative of contractor status, and must “compare favorably” to the employer’s own such investments. The use of a personal vehicle or one that is leased as required by the employer would not be indicative of contractor status.
- The degree of permanence of the working relationship is “not limited solely to the length or definiteness of the work relationship,” and a worker’s lack of a permanent or indefinite relationship with an employer is “not necessarily indicative of independent contractor status.”
Despite focus on platform workers, rule has broad implications: The proposed rule contains several provisions and examples indicating the DOL’s position that many platform workers, such as Uber and Lyft drivers, are likely employees instead of independent contractors under federal law. As mentioned above, the rule states that using one’s own car is not indicative of contractor status, nor is the ability to work for multiple entities. The rule also states that the employer’s ability to set or influence prices for goods or services provided by the worker can be indicative of employee status. These provisions, and more, were clearly designed with platform workers in mind, but will have much broader implications as it will impact all independent contractor relationships.
Outlook: The proposed rule continues the ongoing legal battle over how work arrangements, especially those in the gig and platform economy, are defined under labor and employment laws. There will be legal challenges to both the rule itself and the decision to rescind and replace the Trump rule. The proposed rule is expected to be published in the Federal Register on Thursday, October 13th, with comments due 45 days later. HR Policy will be filing comments based on input from our members.