By: Andrew Scott, Esquire and Joseph McCarter, Law Clerk
On October 13, 2022, the Department of Labor (DOL) published a proposed new rule for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). Designating workers as independent contractors is advantageous to employers, as the FLSA’s minimum wage, overtime pay, and recordkeeping requirements do not apply to independent contractors. Misclassifying workers who are really employees as independent contractors, however, deprives workers of the FLSA’s protections and puts employers who comply with the FLSA’s requirements at a competitive disadvantage. The purpose of the DOL’s proposed rule is thus to better prevent such misclassifications.
The proposed rule would rescind and replace the current rule, which went into effect on March 8, 2021. The current rule was meant to streamline the analysis of whether a worker is an employee or independent contractor by focusing on the following two “core factors”: (1) The nature and degree of control over the work, and (2) the worker’s opportunity for profit or loss. The current rule assigns these core factors greater weight than the other three “non-core factors.”
The proposed rule, on the other hand, would abandon the current rule’s focus on the core factors, and instead require employers to conduct a broad, totality of the circumstances analysis of the following six equally weighted factors: (1) The worker’s opportunity for profit or loss, (2) the worker’s investment, (3) the worker’s permanency, (4) the degree of control by the employer over the worker, (5) whether the worker’s work is an integral part of the employer’s business, and (6) the worker’s skill and initiative. Furthermore, these factors would not be exhaustive.
The DOL believes that the proposed rule’s totality of the circumstances analysis, with its equally weighted factors, is more consistent than the current rule’s core factors analysis with decades of case law on the subject. The DOL also believes that the totality of the circumstances analysis is simpler to apply for employees and workers alike. Further, the DOL is concerned that the current rule, with its emphasis on two core factors, may lead employers to believe that the current rule makes it easier to classify workers as independent contractors and avoid the FLSA’s requirements.
Even though the current rule remains in effect, employers should consider the proposed rule’s totality of the circumstances analysis when deciding whether to classify workers as employees or independent contractors. Employers who do so may avoid having to restructure worker classifications if the proposed rule becomes law. More importantly, employers who do so may avoid being sued by workers challenging their classifications.
The DOL is accepting comments from the public on the proposed rule until November 28, 2022. To make a comment, click here. After the comment period ends, the DOL will consider the comments and issue a final rule on the matter.
Andrew Scott is a Member of PK Law and part of the firm’s Labor and Employment Group. He represents private sector employers and public schools before federal and state courts, federal and state civil rights agencies, and the Maryland Office of Administrative Hearings on a variety of matters, including employment discrimination litigation, collective bargaining, teacher and student discipline, construction and procurement, and wage and hour claims. Mr. Scott also advises clients on the design and implementation of employment agreements, employee handbooks, policies and procedures. Mr. Scott can be reached at 410-339-6744 or ascott@pklaw.com.
Joseph McCarter is a Law Clerk with Pessin Katz Law, P.A. (PK Law). He is in his third year of law school at the University of Baltimore School of Law and is expected to graduate in May of 2023. He can be reached at 410-769-6143 or jmccarter@pklaw.com.
