This month, the U.S. Department of Labor (DOL) stated that its Independent Contractor final rule will now be ready for publication in October 2023. Subsequently, this date is five months later than the DOL’s previously projected date. The DOL made its statement in a filing with the U.S. Court of Appeals for the Fifth Circuit (the Fifth Circuit). As the nation’s primary wage law and one of the most crucial employment laws all businesses need to know, the Fair Labor Standards Act (FLSA) provides a minimum wage and overtime protection for virtually all U.S. workers. However, some employers illegally and inaccurately misclassify their workers as independent contractors to avoid paying required overtime. Earlier this month, the DOL announced that a manufacturer will pay $650,000 for illegal worker misclassification that subsequently denied employees overtime wages for hours worked over 40 in a workweek.
Background of the Independent Contractor Rule
The DOL published its independent contractor notice of proposed rulemaking (NPRM) in the federal register on October 13th, 2023. In brief, the proposed independent contractor rule focuses on an independent contractor’s economic independence from a client rather than the amount of income they earned or whether they have other income streams. To this end, the proposed independent contractor rule applies a six-factor economic reality test that examines the following areas:
- the extent to which the performed work is integral to the employer’s business;
- a worker’s level of investment in facilities and equipment;
- the nature and degree of control in the working relationship;
- a possible contractor’s opportunity for profit or loss;
- the amount of foresight and initiative judgment the worker needs to be successful; and
- how permanent or temporary the work relationship is.
Furthermore, the proposed independent contractor rule’s economic reality test looks at the totality of the circumstances surrounding a particular worker when determining whether they are really an independent contractor.
Delaying the Independent Contractor Final Rule
The DOL’s filing with the Fifth Circuit marks the latest development in the status of the agency’s push toward an Independent Contractor final rule. In 2022, a federal district court in Texas reinstated the Trump-era five-factor independent contractor test that made it easier for employers to classify workers as independent contractors. The DOL appealed the decision to the Fifth Circuit, meanwhile proposing its new independent contractor rule. In its recent filing, the DOL asked the Fifth Circuit to delay further proceedings in the case for 120 days while it considers whether to publish its Independent Contractor final rule. This pushes a possible date of publication to October 2023.
Independent Contractor Classification Under the NLRA
In the meantime, the National Labor Relations Board (NLRB) issued a decision titled The Atlanta Opera, Inc. that made it harder for employers to classify workers as independent contractors under the National Labor Relations Act (NLRA). The NLRB’s decision overrules its 2019 SuperShuttle ruling and applies the previous standard adopted by the 2014 FedEx Home Delivery ruling (FedEx Test). In brief, both standards considered various common-law factors in determining independent contractor classification, such as degree of control over work details, skill required, and method of payment. However, the FedEx Test de-emphasized the “entrepreneurial opportunity” test as it relates to those factors. Instead, it focused on whether the worker was operating an independent business at all.