Department of Labor Issues Proposed Rule For Determining If a Worker Is an Independent Contractor

Tip of the Month - Employment and Labor Law

On September 22, 2020, the U.S. Department of Labor issued a long-awaited proposed rule for determining whether a worker is an independent contractor or an employee under the Fair Labor Standards Act. Now subject to a 30-day public comment period, once finalized, the Rule will be used to assess whether particular workers or service providers are covered by the FLSA’s overtime, minimum wage and recordkeeping requirements, among others. Specifically, the proposed Rule elaborates on the multifactored “economic realities” test and assesses two “Core Factors” and three, less-probative “Guidepost Factors.” The Core Factors look to (i) the nature and degree of the worker’s control over the work, including indicia such as setting one’s own schedule, the autonomy to select or decline projects, and/or the worker’s ability to perform work for other companies, and (ii) the worker’s opportunity for profit or loss based on his/her own initiative and/or investment, including the extent to which the worker can earn greater profits or incur losses by exercising particular managerial skill or business acumen, or managing his/her capital expenditure in connection with the work being performed. The less-determinative Guidepost Factors consider (a) the amount of skill required for the work, (b) the degree of permanence of the working relationship, and (c) whether the work is segregable from the employer’s process in producing goods or providing services. This anticipated rule is expected to become effective in January 2021 and highlights again the importance of accurately and defensibly classifying workers and reassessing the appropriateness of “independent contractor” designations.

Read previous tip of the month newsletters here.



pursuant to New York DR 2-101(f)

© 2023 Manatt, Phelps & Phillips, LLP.

All rights reserved