DOL Clarifies Independent Contractor Definition Under FLSA

On Wednesday, the U.S. Department of Labor (DOL) announced a final rule further distinguishing standard employees from independent contractors under the Fair Labor Standards Act (FLSA). The new rule reaffirms an extant test and identifies core and additional factors that help draw lines between roles, the press release explained.

The final rule includes several clarifications. First, it endorses the presently used “economic reality” test used to determine whether an individual is economically dependent on a potential employer for work or is in business for him or herself. Second, it sets forth two “core factors” deemed most probative to the question posed by the economic reality test. One factor concerns the nature and degree of control over the work, and the other, the worker’s possibility of profit or loss based on initiative or investment.

The rule further identifies three other factors to “serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification.” They are: the amount of skill required for the work, the degree of permanence of the working relationship between the parties, and whether the work is part of an integrated production unit.

U.S. Secretary of Labor Eugene Scalia remarked that the new rule “brings long-needed clarity for American workers and employers.” He further stated that “sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act, while recognizing and respecting the entrepreneurial spirit of workers who choose to pursue the freedom associated with being an independent contractor.”

The new rule comes as many states’ gig-economy workers, including on-demand ride sharing service and food delivery drivers and their advocates, have fought for employment rights. California voters passed a law exempting some gig economy companies from classifying their workers as employees in November. Massachusetts is another independent contractor rights battleground state, as is New York. There, a federal court ordered Uber and Lyft to pay drivers unemployment insurance in July.

The DOL’s new rule is set to take effect on Mar. 8.