U.S. Department of Labor (DoL) Proposes Rule Aimed to Clarify Independent Contractor Eligibility

September 30, 2020

Department on Timeline to Finalize Rule in the 4th Quarter


Last week, the U.S. DoL issued a proposed rule, that would provide new factors to consider when employers are determining a worker's “independent contractor” status, under the Fair Labor Standards Act (FLSA). The Department's attempt to place new federal guidelines around independent contractor status comes as California and several other states are also actively addressing the matter via legislation.


While the proposal outlines several factors to consider when making an independent contractor determination, employers are directed to give two the greatest weight. The first is the nature and degree of the individual’s control over the work, and the second factor is a worker’s opportunity for profit and loss. The proposed rule cites setting work schedules, choosing assignments, working with little or no supervision, and being able to work for others as key elements that determine an "individual's control". If a worker is able to exercise freedom in these areas, then they would more likely be qualified as an independent contractor. 


The second key factor is an individual's opportunity to earn profits or incur losses based on either the exercise of personal initiative (which includes managerial skill or business acumen), or the management of investments in, or capital expenditure on, items including equipment or material. If they are able to operate in these spaces, then the classification would lean towards an independent contractor status.


If a worker is unable to change their earnings through initiative or investment, (and is only able to do so by working more hours or more efficiently), then they would more likely be classified as an employee.


Lesser factors to consider include whether or not a worker requires specialized training or a skill-set that the employer does not provide, whether or not the work is either sporadic in nature (i.e. temporary, seasonal) and whether or not the worker's employment is part of an integrated production process for either a good or service on behalf of the employer.


Prospects and Outlook: IAM will continue to follow the rulemaking process, however it is anticipated that if finalized, the rule will likely be subject to future court challenges, which is fairly common for rules of this scope and shortened approval process timeline.


It may also be subject to the Congressional Review Act (CRA), which allows Congress to overturn regulations within 60 days of finalization, if the House and Senate decide to address it legislatively. However since 1996, only 17 rules have been overturned utilizing the CRA, and any efforts to overturn the rule using the CRA would largely hinge on the results of the November election. 


If your company is interested in providing a formal comment, it must be submitted to the Department by October 26, 2020. If you have additional questions about the propsoed rule, please contact Bryan Vickers, bvickers@pacellp.com, 703-403-2882, with IAM's legislative and regulatory team.