January 12, 2024 • Jordan A. Fishman, Negeen Amirieh
Category: Legal Updates
The United States Department of Labor (“DOL”) recently released a final rule that addresses the classification of workers as independent contractors under federal labor law. The rule goes into effect on March 11, 2024.
This rule voids a 2021 independent contractor rule issued in the Trump era that focused only on two factors, specifically, employer’s control over the work and the worker’s opportunity for profit or loss.
The final rule adopts the longstanding, six-factor economics reality test, which focuses on the economic reality of the relationship between an employer and a worker. The rule outlines the following six factors in order to allow employers the ability to determine whether their workers are employees or independent contractors:
1) worker’s opportunity for profit or loss depending on managerial skill;
2) investments made by the worker and the potential employer;
3) the degree of permanence of the work relationship;
4) the nature and degree of control an employer has over the work;
5) the extent to which work performed is integral to the employer’s business; and
6) the use of a worker’s skill and initiative.
No factor or set of factors is assigned a predetermined weight and this new rule reflects a return to the multifactor, “totality-of-the-circumstances” approach. Also, other factors not explicitly listed may be considered. Although this rule does not define what precise additional factors may be considered, it is clear that these factors will in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the employer for work.
Beginning March 11, 2024, the final rule will begin to apply broadly to all types of workers, and the DOL’s investigators will treat this new final rule as the controlling standard for audits and other compliance actions. Employers must also remember that state law are still, and always will be, in play. To the extent that a state law is more stringent in its independent contractor classifications (e.g., California, Massachusetts, and New Jersey, among other), federal law will not limit the potential exposure.
We recommend that employers review this new rule thoroughly to evaluate how you classify your workers and whether your current independent contractors would satisfy this new rule. As always, Stokes Wagner attorneys are available to provide advice and counsel.
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THIS DOCUMENT PROVIDES A GENERAL SUMMARY AND IS FOR INFORMATIONAL/EDUCATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE COMPREHENSIVE, NOR DOES IT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT WITH COUNSEL BEFORE TAKING OR REFRAINING FROM TAKING ANY ACTION.