The US Department of Labor on Jan. 9 announced a final rule on when workers can be classified as independent contractors. The new regulation, which uses a multifactor “economic reality” test to confirm when a worker is or is not an independent contractor, is effective March 11. It has not been welcomed by everyone.
The new rule relies on six factors to analyze worker status and it rescinds an earlier Trump-era independent contractor rule.
“The previous rule involved consideration of fewer core factors which would indicate employment or self-employment,” said Fiona Coombe, director of legal and regulatory research at SIA. “The new rule involves a multifactor analysis with no single factor carrying more weight than others. This may be more in line with established case law, but it reintroduces a lack of certainty that employers may find unhelpful.”
However, Eric Rumbaugh, a partner at law firm Michael Best & Friedrich LLP, said the new rule likely won’t have a large impact when it comes to litigation.
“I don’t see a meta change in who wins and who loses in court because of this new enforcement policy,” Rumbaugh said. “I believe this has been the DOL’s enforcement position all along.”
For its part, the US Chamber of Commerce said the Department of Labor’s new rule was biased and the chamber said it may proceed with litigation.
The new regulation “will decrease flexibility and opportunity and result in lost earning opportunities for millions of Americans,” Marc Freedman, US Chamber of Commerce VP of workplace policy, said in a press release.
“It threatens the flexibility of individuals to work when and how they want and could have significant negative impacts on our economy,” Freedman said, adding that the rule is “completely unnecessary, as the department continues to report success in cracking down on bad actors that are misclassifying workers.”
The department received 55,000 comments in relation to the new rule.
The new rule confirms that a worker is not an independent contractor if they are, as a matter of economic reality, economically dependent on an employer for work. It applies these six factors to analyze independent contractor status:
- Opportunity for profit or loss depending on managerial skill
- Investments by the worker and the potential employer
- Degree of permanence of the work relationship
- Nature and degree of control
- Extent to which the work performed is an integral part of the potential employer’s business
- Skill and initiative
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” Acting Secretary of Labor Julie Su said in a press release. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
The Department of Labor released an FAQ on the new rule.