DOL Rulemaking Proposes a Return to the “Totality-of-the-Circumstances” Analysis for Independent Contractors

The U.S. Department of Labor (DOL) is proposing a rule to modify Wage and Hour Division regulations to revise its analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA).

Earlier this year a federal court blocked the Biden Administration’s effort to publish a rule that would withdraw the independent contractor rule adopted by the Trump administration on the grounds that that the DOL failed to consider meaningful policy alternatives. The DOL re-entered rulemaking on the premise that its proposed rule will be more consistent with judicial precedent and the FLSA’s text and purpose.

Under the proposed rule the DOL seeks to rescind the Trump-era rule that gave greater weight to how much control workers have over their job duties and their opportunities for profit or loss. The proposed DOL rule seeks to establish a non-exhaustive six step economic realities test for determining whether a worker is an employee or independent contractor. The proposed changes would be a return to a “totality-of-the circumstances” analysis that considers all of the factors involved in the working relationship equally and a return to considering whether the work is integral to the employer’s business. The DOL believes its proposal will help protect workers from misclassification and provide a consistent approach for businesses.

The proposed rule will be published in the Federal Registrar on Oct. 13 and then open to public comment for 45 days. While projected to have the largest impact on the gig-economy workforce, the Biden Administration’s proposed rule will fortify the DOL’s recent focus on worker misclassification across all industries. The DOL can expect strong opposition from business trade groups that project increased costs under the more stringent proposed classification rule.

Please contact Raquel Ramirez Jefferson or any member of the Phelps Labor and Employment Team if you have questions or need advice or guidance.