On September 22, 2020, the U.S. Department of Labor announced a new proposed rule regarding employee and independent contractor status under the Fair Labor Standards Act. The full text of the proposed rule is available here. The rule's drafters intend to reduce uncertainty and enhance the precision and predictability of the long-standing "economic reality" test, which currently relies on a multifactor balancing test. The proposed rule contains the following developments:
- It sets forth a new approach to the economic reality test, which considers whether a worker is in business for themselves or is economically dependent on the putative employer by looking at five distinct factors.
- Two core factors would be given greater weight in determining whether or not the worker is economically dependent: the nature and degree of the worker's control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment.
- Three other factors may also contribute to the analysis, including the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production.
- The proposed rule emphasizes that actual practices are more relevant to the analysis than what is theoretically possible in determining whether a worker is an employee or an independent contractor.
This proposed rule would supplant the various approaches to the economic reality test that have evolved in federal courts, the DOL's subregulatory guidance, and industry-specific regulations. It's worth noting that the outcome of the November election could affect the future of this proposed rule. The rule is generally perceived as more business-friendly, and the Trump administration is seeking to fast track this rule for finalization before January 20, 2021. But if it is unable to do so, and Biden defeats Trump, the proposed rule would likely be in jeopardy. Or if Democrats flip the Senate the rule could potentially be undone by Congressional action.
The comment period has not yet begun, but the public will have 30 days to comment on the proposed regulation once it has been published in the Federal Register. The Employment and Labor team at Brennan Manna Diamond is available to assist if you would like to submit a comment regarding this proposed rule.
For more information, please contact Russell Rendall at 216.658.2205 or firstname.lastname@example.org.